One of the measures of a good law is whether it is overinclusive (e.g., banning too many activities in an attempt to prevent the truly “bad” ones) or underinclusive (e.g., penalizing only some, but not all, those who do “bad” things). Among other f…

I realize that the fast-food tax is both over-inclusive (not all fast-food consumers litter) and under-inclusive (health nuts litter too), but since we can’t realistically tax individual behavior, this might be the second best.

I have no view on whose preferences should be subsidized. I just want to point out that in the absence of incentive effects and transaction costs (of collecting the tax), we should be agnostic on whom we want to subject to tax. I also express no opinion on whether the tax will have incentives effects or whether it’s cheaper to collect tax from fast-food joints than from residents of Oakland directly.

It may make sense to tax polluters if doing so gets them to change their behavior (via cost-internalization). This reduces social cost — i.e., the inefficiencies resulting from externalities. The tax here is unlikely to reduce social cost because the party directly bearing the tax is not “rewarded” (with lower taxes) for reducing social costs, and, in any event, is not in a good position to reduce the cost at issue, litter. The internalization rationale for pollution taxes therefore doesn’t work.

If we want to tax “producers of waste,” then we’d focus on litterers (is that a word?). Oakland’s tax, effectively paid by all fast-food consumers — not just the litterers, and, for reasons stated above, probably not just fast-food consumers in Oakland — doesn’t concentrate the tax burden on either beneficiaries of the public good or creators of the social cost.

I’ll match your casual empiricism with casual theorizing!

Sure, chains can — and do — set special prices for local markets, but there’s a cost to doing so (e.g., hassles, reduced ability to engage in national or region-wide price advertising, etc.). If the local cost increase occasioned by a tax is great enough, a chain would go ahead and incur these costs. Here, though, the tax is pretty small and the cost of Oakland-specific pricing would be pretty big (for example, McDonalds couldn’t advertise prices in the San Francisco Chronicle — or, if it did, it would have to clutter up the ads with information about Oakland’s special pricing). My hunch — and it’s admittedly just a hunch — is that this small tax wouldn’t justify costly efforts to tailor prices for one municipality within a much larger metropolitan area. I suppose the national chains might go ahead and incur these transactions costs (rather than just cross-subsidizing Oakland) in order to prevent other localities from following Oakland’s lead. I guess we’ll have to watch what happens to the price of Big Macs in Oakland!

(BTW–If you’re right, then there’s no “brilliance” to this tax. It’s just wrong-headed.)