Feb 28 2008

Question: Why would a firm voluntarily tax its own customers?

Published by at 8:47 pm under Environment,Market failure,Taxes

Answer: Because sometimes it’s just the right thing to do.

Major British retailer Marks & Spencer will charge for plastic bags – International Herald Tribune

More and more firms and governments are seeing the merits of corrective taxes on plastic bags. British retailer Marks and Spencer will voluntarily begin “taxing” its customers who wish to use plastic bags:

Beginning May 6, food and clothing retailer Marks & Spencer says it will charge 5 pence (10 US cents, €0.07) per plastic bag.

Marks & Spencer says it hopes the charge will save 280 million bags per year, and income from bags that are sold will go to an environmental charity called Groundwork.

The company said Thursday that it has tested the idea in Northern Ireland and southwestern England, and says it cut bag use by 70 percent.

Now that’s good economics, right out of a principles text: tax the product whose overconsumption creates negative externalities for the environment, and use the revenue earned to support environmental projects in the community. Here’s to Marks and Spencer, a corporation with an environmental conscience!

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About the author:  Jason Welker teaches International Baccalaureate and Advanced Placement Economics at Zurich International School in Switzerland. In addition to publishing various online resources for economics students and teachers, Jason developed the online version of the Economics course for the IB and is has authored two Economics textbooks: Pearson Baccalaureate’s Economics for the IB Diploma and REA’s AP Macroeconomics Crash Course. Jason is a native of the Pacific Northwest of the United States, and is a passionate adventurer, who considers himself a skier / mountain biker who teaches Economics in his free time. He and his wife keep a ski chalet in the mountains of Northern Idaho, which now that they live in the Swiss Alps gets far too little use. Read more posts by this author

35 responses so far

35 Responses to “Question: Why would a firm voluntarily tax its own customers?”

  1. calvinluon 29 Feb 2008 at 12:34 am

    So i suppose this is a fiscal policy from Mark and Spencer. The tax corrects the overly-high demand for plastic bags, which can be considered as a market failure. a smart step to help the environment.

  2. Conrad Liuon 29 Feb 2008 at 1:04 am

    Indeed, couldn't have put it better. Because the negative externalities plastic bags carry with them, and also because of the high demand of these bags, Mark and Spencer places a tax to rid, or at least improve, the situation. Very nice.

  3. James Tsaoon 29 Feb 2008 at 1:23 am

    Wow this is a really clever move. Not only has Marks and Spencer saved tons of resources from going to waste as plastic bags, but it also taxed negative externalities and use the money to further manage them. I would think the point of donating the money from taxing would be to enhance the brand loyalty of the company, hence securing a larger amount of sales in the future.

  4. Drew Venkatramanon 01 Mar 2008 at 5:27 pm

    I used to shop at a grocery store that charged for bags to, and when you did buy them you could only purchase the paper ones because they were more easily recyclable. That aside, I think this is the perfect idea for removing a negative externality, it may seem like a pain but it does make you think, and it makes you more eco friendly.

  5. Dana Y.on 01 Mar 2008 at 8:05 pm

    I agree with everybody that Mark and Spencer has implemented a great measure. Taxing plastic bags to consumers not only remove negative externalities, its also environmentally friendly. Think how much resources could be saved if all shops employed this measure!

  6. Dana Yon 01 Mar 2008 at 8:06 pm

    I agree with everybody that Marks & Spencer has implemented a great measure. Taxing plastic bags to consumers not only removes negative externalities, it's also environmentally friendly. Think how much resources could be saved if all shops employed this measure!

  7. Annie Sungon 02 Mar 2008 at 1:30 am

    In the past year, lots of supermarkets and shops in Taiwan have also been implementing a similar measure. The fact that people have to pay for a flimsy plastic bag is a good way of driving them away from using these bags, unless you really, really need them. (E.g. toilet paper goes on sale and you buy 'em all, just in case) Although I still occasionally come across some self-conscious women willing to pay 1 coin rather than put their shampoo in their handbags, this measure has been effective, and promotes the idea of investing in inexpensive, re-usable totes.

  8. kevinmaon 02 Mar 2008 at 4:01 pm

    I agree that Mark and Spencer came up with a very good plan to cut the uses of plastic bags. I have read in the past about how Mark and Spencer is a very socially responsible company. This is just another example to how try to make the world a better place, by cutting the use of something that is environmentally damaging. A store in gubei also charges you for plastic bags, it is an organic store owned by a taiwanese guy. However, whenever i am there, it appears that the consumers don't mind paying extra for the bag.

  9. ElaineLungon 02 Mar 2008 at 5:26 pm

    Oh Britain, the things you do to make life in you so appealing. Men with attractive accents, lovely architecture, free health care. And now, big environmentally-friendly companies?

    Man, and it's even better that you guys have a low cost of living, fantastic weather, no waiting lines for healthcare, and low taxes!

    …Oh wait.

    Seriously though, I applaud Marks and Spencer.

    And I still think a lot of accents in the UK are hot.

  10. Jonathan Lauon 02 Mar 2008 at 7:20 pm

    Nicee this is a perfect example of eliminating a negative externality by taxing the product that causes it. Not only will the environment be cleaner from the decrease in plastic bag use, but the money that is made from the few that are purchased will go to an environmental charity. Win-win situation

  11. Jessicaon 02 Mar 2008 at 9:22 pm

    YAY for Marks and Spencers! As Annie said, convenience stores in Taiwan charge for plastic bags as well, and I have actually noticed a decrease in the amount of bags. People don't actually NEED these bags when they simply buy a bag of chips or a soda. We simply take it because the stores offer them to us. I approve of M&S taxing people because it helps the environment, but if they taxed their customers for their own benefit…well, that's a whole other story. And Elaine…what a random post LOL.

  12. Kai Lin Fuon 02 Mar 2008 at 9:52 pm

    Woot! Finally, an real action towards improving our environment. And according to the DailyGreen the China State Counsel has putforth a nationwide ban on plastic bags! Because of the ban China's largest plastic bag manufacturer, Suiping Huaqiang Plastic,has closed down!

  13. Cassy Changon 02 Mar 2008 at 11:35 pm

    This reminds me of the paper cup project that roots and shoots introduced. At first, people thought it was totally unnecessary and a hassle, but now, bring bottles is a habit. In Taipei, people bring their own bags to go shopping. Charging for plastic bags definitely forces people to bring their own, which will eventually become a habit!

  14. Hansenon 03 Mar 2008 at 1:05 am

    Yes indeed this is an economically and socially sound move. As for personal experiences, many shops are now also offering substitutes for the plastic bags with reusable shopping bags created from recycled things. Also, I've seen a lot of these bags come from WWF with each purchase of a reusable bag, you donate a certain % of that purchase to the WWF. All the better huh?

  15. calebon 03 Mar 2008 at 10:16 am

    This strategy is great move for the environment and retaining valuable resources that could be used in other parts of the economy or for future use. 7-11 has a similar strategy in taiwan. You must pay for a bag.

  16. Tarynon 05 Mar 2008 at 10:30 pm

    That is pretty nifty. I am guessing somehow the tax will not harm the "grocery" company or it will not deplete the amount of costumers, so it is a win win situation. Ideally I am guessing this plan does not harm the company in profits, it benefits an environment charity and it helps the environment. In a way they are making it more expensive to "pollute" and use "harmful things that harm the environment." I like it. We should do it more often, but I consider myself somewhat of an environmentalist.

  17. jenniferchoion 06 Mar 2008 at 6:13 am

    We have the same policy in Korea for the use of plastic bags in grocery stores. I think this is a really good policy becuase it certainly makes customors to use less plastic bags and save environment.

  18. yunqimokon 08 Mar 2008 at 1:10 pm

    This is excellent!! After all, if ALL businesses started taxing for plastic bags, then people would have no choice but to become more environmentally friendly.

  19. kxc.024on 08 Mar 2008 at 1:17 pm

    This is great! I really think that just because they're starting to charge for plastic bags, that doesn't their business will be affected. Especially since M&S is a large corporation that most people know about, if they implement this measure successfully, then other firms might follow and soon, plastic bags will become something you use as a last resort!

  20. Jeff Yeon 18 Mar 2008 at 8:09 pm

    What a beautiful concept. A large-scale company actually caring about the world we all live in, it brings tears to my eyes and joy to my heart. Anyway, i congratulate M&S for their success at helping our mother nature, and i can only hope that other greedier companies follow suit.

  21. Nick Bateson 14 Feb 2011 at 8:58 am

    Intreresting to see whether the increase in price, causing a move along demand curve , will be cancelled out by a shift of demand to the right as people improve their image of M&S. Could provide some discusssion on elasticity and tax incidence, not to mention people approving an increase in tax!

    In Switzerland there has been a larger charge for a number of years, which all the main supermarkets impose. Some cantons also tax garbage sacks individually.

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