The Downside of Using a Tax to Target Specific Activities

Multiple Choice

The downside of using a tax to target specific activities, rather than the externality itself, is:

A) it risks misaligning the incentives that producers and consumers face with the goal of minimizing the externality.
B) it requires a number of different activities to be identified and several different policies to be written, which can be cumbersome and difficult to manage.
C) any one activity is likely to not make a significant difference in the presence of an externality.
D) All of these statements are true.