ECON1056: Decision-makers in government rely on the advice of experts when formulating policy or discharging their statutory responsibilities: Managerial and Business Economics Report, RMIT, Singapore

Decision-makers in government rely on the advice of experts when formulating policy or discharging their statutory responsibilities. In this assignment, you will take the role of an expert economist, employed by a government department. An expert economist’s role in the government decision-making process is two-fold:

• Analysis: Economists use their specialist knowledge and skills to analyze the likely outcomes of policy alternatives. They then evaluate these outcomes against the government’s objectives and statutory obligations.
• Communication: Economists communicate their findings to ministers and senior public servants, who, in many instances, do not share their specialized knowledge.

Scenario

The island nation of Autarka is growing concerned over the amount of rubbish accumulating in the waters off its coastline. This pollution is harming marine life, damaging fish stocks, and washing up on tourist beaches. Research by the National University of Autarka has determined that a significant component of solid waste is the single-use plastic bottles used by soft-drink manufacturers.

Currently, soft drink manufacturers in Autarka pay a tax of $0.40 on each bottle of drink they sell. The revenue from the tax is used to fund the cleaning of roads and public spaces. The scientific community is lobbying the government to increase the tax to $1.00 a bottle. The scientists suggest that any additional revenue could be used to fund programs to remove rubbish from the coastal waters.

There are two producers of soft drinks in Autarka: Bubbles PLC and CarbonCorp. The two companies do not face competition from imports as the cost of transporting soft drinks into Autarka is prohibitively high. Moreover, there are no cost-effective alternatives to single-use plastic containers. The two companies have made submissions to the government opposing the proposed tax increase, which they claim will harm consumers.

Task

The Minister for the Environment has instructed you to determine the likely impact of the proposed tax increase on the market for soft drinks and to recommend whether or not the government should implement the proposed tax increase. Your recommendation should take into account

• the impact on government revenues,
• the impact on consumers, and
• the impact on the environment.