If the government could raise taxes on one good, which product should the government increase tax rates in order to raise tax revenue? a. Cigarettes b. Alcohol c. Sodas d. None of the above

a. Cigarettes

Explanation:

Goods such as cigarettes, alcohol, gambling, etc are referred to as Demerit goods as all of these are harmful to the consumers in some form or the other.

In order to raise taxes and thereby reduce the consumption, governments of various states have historically increased taxes on cigarettes and tobacco.

Taxes imposed on cigarettes, cigars and tobacco account for major tax revenues, usually higher than revenue derived from taxation of alcohol and gambling.

Such taxes are referred to as "sin" taxes. The twin objectives served by such a tax being discouraging purchase of such products and in the meantime generation of high tax revenues.

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