“Researchers at the University of Oxford suggest the UK Government impose a tax on red meat”
The aim of the government’s possible imposition of a tax on red meat is to internalise the many negative externalities of the consumption of red meat. There have been huge amounts of research into the health risks associated with the consumption of red meat, specifically processed red meat such as bacon and ham. Pan et al. 2012 concluded that the consumption of red meat is correlated with an “increased risk of total, CVD, and cancer mortality”. In the article, they clearly recommend that red meant is substituted for other healthier sources of protein that are related to lower mortality risks such as white meats (Pan et al. 2012). Another study observed a noticeable link between beef consumption (three or more servings a week) and the fatal risk of Coronary Heart Disease (CHD) (Fraser 1999). The awareness of these risks is now likely to be considered as common knowledge as the public is undoubtedly aware of these dangers yet the consumption of red meat is still very high in the UK. Therefore it is only logical that the government are considering implementing a tax as their next steps to combat the issue.
A negative externality is seen where the overconsumption of a good or service generates social welfare losses (Kaufman 1995). The negative externalities associated with the consumption red meat are the obvious health risks to the individual; one study discovered that when red meats are consumed more than five times per week, it is associated with roughly a 20% increased risk of colorectal cancer (Larsson and Wolk 2006). Not only this but negative externalities are experienced to services. If more and more people are suffering from illnesses such as heart disease and various cancers then the already struggling National Health Service (NHS) is going to be unable to cope with the increasing influx of patients. This may lead to a reduction in the quality of service the NHS is able to provide and subsequently, patients may die where the otherwise would not have. If more people are dying, specifically economically active agents, as a result of overconsumption of red meats due to the NHS being inundated with patients then these individuals can no longer contribute to our economy which could lead to disastrous effects in the very long-term.
These negative externalities exist because consumers often behave in a myopic way that maximises their utility, which in this case is to consume red meat for the satisfaction it gives, without consideration of the evident long term effects. Consumers behave this way because maximising their utility is the rational way to act. The British economist A. C. Pigou became known as a pioneer for a solution to these negative externalities by the implementation of a tax. The idea simply states that if person A chooses to perform an activity, (in this case consuming red meat), that imposes a cost on person B, (in this case the individual themselves, the NHS, and in the long term the economy), then imposing a tax on A by the amount of this cost will give the individual the an incentive to consider the negative externalities of his consumption decisions (Frank and Cartwright 2016).
In Figure 1 it is clear that if no tax is implemented then the private equilibrium will be a point A, the output consumed will be at Q1 and the price of the cost is at P1. If left to the market this will lead to a deadweight loss of economic welfare (area shaded red). It is therefore down to the tax to internalise this externality. The tax causes the Marginal Private Cost (MPC) curve to shift to left bringing about a new social optimum equilibrium at point B. The new output of red meat would fall to Q2 and the price would rise to P2, thus removing the deadweight loss.
The idea behind the tax is that when a tax is added to the good the price of the consumption and the cost of production of the good rises, as see in figure 1, from P1 to P2. This rise in price acts as an incentive from consumers to consume less red meat so they have more money to spend on other goods. The incentive for producers is to raise the price of the good for the consumer so as to retain their profits as a result of the rise in the cost of production. The tax will hopefully mean that fewer people consume red meat and therefore fewer people will suffer from the associated health risks of its consumption; ultimately meaning that the NHS will be under less strain from people suffering from illnesses as a result of their red meat intake. It may also encourage individuals to substitute red mead for healthier alternatives like white meats such as chicken and fish.
The government can subsequently use the tax revenue collected from the tax to put towards other things. For example, it would be beneficial to put more money into the NHS so that they are better able to cope with the number of patients they have and provide a higher quality service. The government could also put money into informing the public further about the dangers of overconsuming red meat through advertising or making it a compulsory part of the education system.
Although taxation has its clear benefits, it is not a perfect intervention to correct the clear market failure that is occurring. Firstly, the elasticity of demand for red meat must be taken into account. If the demand for red meat is highly inelastic then it will render the tax useless because the slight increase in the price of red meats will have a less than proportional effect on demand. In a 2011study it was estimated that the uncompensated price elasticities for beef and pork (popular red meats) in 2009 was -0.594 and -0.779 respectively, meaning they are both price inelastic (Tiffin et al 2011). Therefore the tax is likely to have little effect on consumption because consumers will still buy red meats such as beef and pork despite the rise in price.
As seen in Figure 2, in the diagram on the right, we see a good with a price inelastic demand such as is the case for beef and pork. When a tax is implemented on supply from S1 to S + tax the fall in quantity from Q1 to Q2 is much less significant than that in the diagram on the left. Therefore the government cannot be sure how effective the tax is likely to be.
Another issue with taxation as a form of government intervention is that there may be difficulty setting the correct value of the tax. If the monetary value of the negative externality of red meat consumption is hard to measure then it may be set too high or low. For example, if the tax rate is set too low then the tax will be ineffective especially when coupled with the fact that most red meats have a price inelastic demands. Consumers will be unfazed by the tax and still buy red meat as they normally would. However, if the tax is set too high then this creates an incentive for consumers to avoid paying the tax through means such as “bootlegging”. This will not be good for the government and they are likely to have to implement stringent regulations to stop this which would be costly. Regardless of this regulation will have to be imposed anyway as the government needs to ensure the tax is being collected properly which again is going to be costly to the government.
Lastly, indirect taxes such as the proposed tax on red meat are highly regressive. This means that families on low incomes will struggle to cope with the increase in the price of red meat as it is these families that have lower disposable incomes due to their inability to save. Therefore these families are paying a higher percentage of their incomes in taxes compared to the rich. One example where this is clearly seen is the excise duty of cigarettes. It is well known that most cigarette smokers are on lower incomes anyway so this tax is highly regressive. Remler 2004 found that due to recent significant rises in cigarette taxes, the issue of regression is now a more substantial issue. To illustrate, in New York City their federal cigarette taxes are now $3.39 per pack. This makes the tax bill over $1200 per annum for a pack-a-day smoker which is highly significant to those on poor incomes (Remler 2004).
To conclude, it is clear that if left to the market there will be market failure where the consumption of red meat is concerned, so the government will need to intervene somehow to correct this. However, it is up to the government to ensure that their government intervention does not need to government failure: where government intervention, in this case, taxation subsequently leads to a misallocation of resources by distorting the price mechanism. To avoid this, it is evident that significant regulation will need to be implemented alongside the taxation despite the expenses, to avoid government failure and ensure maximum efficacy of this possible tax in the long-run.
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