A tax deduction allowed for an activity for which positive externalities are not likely to exist (such as home ownership) is likely to cause the marginal social cost of the activity to exceed its marginal social benefit.

Question

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Positive externalities refer to the benefits that a society gains from an activity that are not reflected in the private benefits received by the individual engaging in that activity. Home ownership, for example, is argued to have positive externalities such as increased property values and reduced crime rates in the community. Therefore, providing tax deductions for home ownership can incentivize people to engage in this activity, despite the fact that the marginal social cost (including any negative externalities such as congestion and environmental degradation) may exceed its marginal social benefit.

A Tax Deduction Allowed for an Activity for Which Positive