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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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Citations

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Cited by:
  1. Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2013. "Optimal tax rules and addictive consumption," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 37(5), pages 984-1000.
  2. Haavio, Markus & Kotakorpi, Kaisa, 2011. "The political economy of sin taxes," European Economic Review, Elsevier, Elsevier, vol. 55(4), pages 575-594, May.
  3. Markus Haavio and Kaisa Kotakorpi, 2012. "Sin Licenses Revisited," Discussion Papers, Aboa Centre for Economics 75, Aboa Centre for Economics.
  4. 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.
  5. Pierre Pestieau & Gregory Ponthiere, 2012. "Myopia, regrets, and risky behaviors," International Tax and Public Finance, Springer, Springer, vol. 19(2), pages 288-317, April.
  6. Adel Bosch & Steven F. Koch, 2014. "Using a Natural Experiment to Examine Tobacco Tax Regressivity," Working Papers, University of Pretoria, Department of Economics 201424, University of Pretoria, Department of Economics.
  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, De Gruyter, vol. 14(2), pages 551-575, May.
  8. Michael Funke & Marc Gronwald, 2009. "A Convex Hull Approach to Counterfactual Analysis of Trade Openness and Growth," CESifo Working Paper Series, CESifo Group Munich 2692, CESifo Group Munich.
  9. De Donder, Philippe & Leroux, Marie-Louise, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 749, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2013.

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