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Introduction of Indirect Taxing on Energy Drinks in France

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This article discusses how France introduced an indirect tax on energy drinks at €1 per liter. The tax was imposed to tackle alcohol consumption among France’s young population and energy drinks consumption due to its high levels of caffeine and sugar.

A form of government intervention, an indirect tax, “a tax placed on consumption that is considered indirect since households only pay then when they buy a good, ” affects the energy drinks market outcomes.

Pertaining to the diagram above, previous to government intervention, the energy drinks market was allocated purely by the forces of demand and supply1 with market equilibrium at PE (original price) and QE (original quantity). After a tax of €1 per liter was imposed, the equilibrium quantity of energy drinks produced and consumed decreased to Qtax, as the supply curve shifted upwards to Stax . Furthermore, the price paid by consumers increased to Pc from PE and price received by the energy drinks companies decreased to Pp from PE. In addition, consumer expenditure on energy drinks decreased as well. Due to indirect tax, this changed from (d+e+f+g+h) to (b+d+f+g) since consumers are purchasing less of the good as the price increased. The company’s revenue also decreased significantly from (d+e+f+g+h) to (f+g), as the quantity of output decreased. However, the government received tax revenue of (b+d), increasing its budget. Indirect tax on energy drinks ultimately results in underallocation of resources. Too little of
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