What is the primary characteristic of an excise tax?

The primary characteristic of an excise tax is that it targets specific types of goods or activities. An excise tax is applied to particular products, such as gasoline, tobacco, alcohol, and certain luxury items, rather than being applied broadly to all goods or as a general sales tax. This means the tax is typically aimed at discouraging the consumption of items that may be harmful to health or the environment or to generate revenue from the sale of specific goods or services.

Because excise taxes are designed to address specific behavior or to fund particular government programs related to the targeted goods, they serve both regulatory and revenue-generating functions within fiscal policy. This distinction is crucial in understanding how excise taxes operate compared to other forms of taxation.