Article ID Journal Published Year Pages File Type
970362 Journal of Public Economics 2006 25 Pages PDF
Abstract

We investigate “sin taxes” on unhealthy items, such as fatty foods, that people may (by their own reckoning) consume too much of. We employ a standard optimal-taxation framework, but replace the standard assumption that all consumers have 100% self control with an assumption that some consumers may have some degree of self-control problems. We show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus. Because such taxes counteract over-consumption by consumers with self-control problems while at the same time they naturally redistribute income to consumers with no self-control problems (who consume less), such taxes can even create Pareto improvements. Finally, we demonstrate with some simple numerical examples that even if the population exhibits relatively few self-control problems, optimal taxes can still be large.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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