Plastic Bags, Taxes, and Transaction Costs

Nearly a year ago, I posted this about San Francisco's proposed tax on plastic shopping bags, in which I suggested that the proposed tax was much higher than necessary.

Then last month, I posted this set of amusing calculations about the price elasticity of demand for plastic grocery bags, based on data points from Ireland. (note to students: this is a good example of the weird results from calculating arc elasticities).

Recently, Brian Ferguson sent me an article about the proposed tax on plastic grocery bags in Scotland.

SHOPS have warned that plans for a tax on plastic bags could turn into a bureaucratic nightmare because each of Scotland's 23 local authorities will be responsible for the levy in their own area.

... The Scottish Retail Consortium said: "The levy will be collected by local authorities. The complexities associated with retail stores administering different taxation systems, where they operate in more than one local authority, will be hugely burdensome.

"A national retailer could potentially make tax returns to 32 different local authorities via 32 different systems of payment and enforcement."

It added the system was also likely to have an impact on the already over-stretched resources of local authorities responsible for enforcing the levy. And it pointed out the levy would also be more costly for smaller businesses.

Policies which do not take transaction costs like these into account can become a nightmare; at the very least, they are likely not to have the desired results and/or to have serious unintended consequences.