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The Political Economy of Sin Taxes

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  • Markus Haavio
  • Kaisa Kotakorpi

Abstract

We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under reasonable assumptions, the socially optimal corrective tax exceeds the average distortion caused by self-control problems. Further, we analyse how individuals with self-control problems would vote on taxes on the consumption of harmful goods, and show that the equilibrium tax is typically below the socially optimal level. When the redistributive effects of sin taxes are taken into account, the difference between the social optimum and equilibrium is small at low levels of harm, but becomes more pronounced when consumption is more harmful.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2650.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2650

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Keywords: excise taxation; voting; self-control;

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References

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Citations

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Cited by:
  1. De Donder, Philippe & Leroux, Marie-Louise, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," IDEI Working Papers 749, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2013.
  2. Markus Haavio & Kaisa Kotakorpi, 2009. "The Political Economy of Sin Taxes," CESifo Working Paper Series 2650, CESifo Group Munich.
  3. Markus Haavio & Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," CESifo Working Paper Series 4010, CESifo Group Munich.
  4. Adel Bosch and Steven F. Koch, 2014. "Using a Natural Experiment to Examine Tobacco Tax Regressivity," Working Papers 434, Economic Research Southern Africa.
  5. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," Quantitative Macroeconomics Working Papers 20906, Hamburg University, Department of Economics.
  6. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2013. "Optimal tax rules and addictive consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 984-1000.
  7. De Donder Philippe & Leroux Marie-Louise, 2013. "Behavioral Biases and Long-Term Care Insurance: A Political Economy Approach," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 14(2), pages 551-575, May.
  8. Pierre Pestieau & Grégory Ponthière, 2009. "Myopia, regrets and risky behaviors," PSE Working Papers halshs-00566823, HAL.
  9. D. Dragone & F. Manaresi & L. Savorelli, 2013. "Obesity and smoking: can we catch two birds with one tax?," Working Papers wp873, Dipartimento Scienze Economiche, Universita' di Bologna.

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