Part IV: Yes, Taxes Change Behavior

October 14, 2025 by Dan Mitchell @ International Liberty  

There can be honest and constructive debates about the size of government, such as when I cross swords with someone on the left who understands Arthur Okun’s efficiency-equity tradeoff.

Another legitimate debate is about the impact of tax policy, specifically whether higher or lower tax rates have big effects or small effects.

But to have such debates, it is necessary for for sides to recognize that taxes impact behavior. Which is why I started the Yes-Taxes-Change-Behavior series.

• Part I of this series looked at how the capital gains tax discourages old people from selling their homes.
• Part II of this series looked at how a so-called luxury tax was distorting the vehicle market in Australia.
• Part III looked at how high marginal tax rates lead to less productive behavior in the United Kingdom.

For our fourth installment, let’s travel to the Mediterranean.

As explained in a 2024 Reuters report by Renee Maltezou, the Greek government decided to use taxes to discourage over-tourism. Here are some passages.

 

Greece plans to impose a 20-euro levy on cruise ship visitors to the islands of Santorini and Mykonos during the peak summer season, in a bid to avert overtourism, Prime Minister Kyriakos Mitsotakis said… Speaking at a press conference a day after outlining his main economic policies for 2025,

Mitsotakis clarified that excessive tourism was only a problem in a few destinations. “Greece does not have a structural overtourism problem… Some of its destinations have a significant issue during certain weeks or months of the year, which we need to deal with,” he said. “Cruise shipping has burdened Santorini and Mykonos and this is why we are proceeding with interventions,” he added, announcing the levy. …The government also plans to regulate the number of cruise ships that arrive simultaneously at certain destinations, while rules to protect the environment and tackle water shortages must also be imposed on islands, he said.

By the way, the purpose of today’s column is not to support this new tax. Or to condemn this new tax.

I’m simply making the point that Greek politicians understand economics. They know that when you tax something at a higher rate, you get less of it.

Much as American politicians sometimes understand economics, such as when they try to discourage certain behaviors with higher tax rates on tobacco, plastic bags, and sugary products.

What I want, however, is for politicians around the world (and especially in the United States) to demonstrate the same economic insight when considering tax rates on behaviors that are unambiguously good for society – such as work, saving, investment, and entrepreneurship.

Given their twisted ideologies and perverse incentives, I won’t be holding my breath.