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Consider some everyday examples. McDonalds entering a new market harms the local Burger King. Ditching the car in favour of a transit commute harms those who sell gas. Choosing to work less means you’ll pay less tax, therefore indirectly harming others who must make up the difference. Are these real externalities? No. One person’s gain is another’s loss – it’s a wash overall, so corrective taxes do not make sense.

Distinguishing financial from real externalities is not new. Many years ago, economist Arthur Pigou – after whom externality correcting taxes, or Pigouvian taxes, are named – called it “spurious fallacy” to argue financial spillovers demand intervention. His example: a new product innovation that lowers prices and harms an incumbent firm. He correctly notes “whatever loss the old producers suffer … is balanced by the gain [to] the purchasers.”

For healthcare costs, the story is similar. A skier’s broken leg costs us all money, but would have happened regardless. The money the skier saves is offset by costs on others. As before, it’s a wash.

The same is true for sugar consumption and obesity-related health costs. Costs are shifted, not increased, so no tax is necessary.

Of course, it’s an interesting question whether the presence of a public healthcare system itself leads people to engage in risky or unhealthy behaviour. I know of no good evidence for this when it comes to sugar consumption, but if it does (and if that concerns us) the solution is not to tax Coca-Cola but to charge for healthcare.