Tax Away an Externality

Economists aren't generally fond of bans.  Why ban a good that generates an external cost but which, if the cost were exactly offset, would generate a social gain?  So it is with plastic bags.

There is something missing from this otherwise typical bustling cityscape. There are taxis and buses. There are hip bars and pollution. Every other person is talking into a cellphone. But there are no plastic shopping bags, the ubiquitous symbol of urban life.

In 2002, Ireland passed a tax on plastic bags; customers who want them must now pay 33 cents per bag at the register. There was an advertising awareness campaign. And then something happened that was bigger than the sum of these parts.

Within weeks, plastic bag use dropped 94 percent. Within a year, nearly everyone had bought reusable cloth bags, keeping them in offices and in the backs of cars. Plastic bags were not outlawed, but carrying them became socially unacceptable — on a par with wearing a fur coat or not cleaning up after one’s dog.

At the local grocery store we can purchase durable bags for $0.99 from a display on the way out of the store (after we are asked if we want paper or plastic). Needless to say, I have about 100 or so plastic grocery bags at home. And, needless to say, I'd avoid paying $33 for them if there was a tax.