Optimal Libertarian Sin Taxes
AbstractThis paper studies the optimal fiscal treatment of addictive goods (cigarettes, drugs, fatty foods, alcohol, gambling etc.). It shows that, when agents have private information about their productivity levels and their degree of rationality, the Atkinson and Stiglitz result of optimal uniform commodity taxation does not hold: addictive and non-addictive goods should be taxed at different rates. Depending on the direction of redistribution, the addictive good should be taxed more or less than the non-addictive good. Differential commodity taxation is not driven by the planner’s paternalism, but only by incentive considerations. A tax authority which fully respects consumers’ sovereignty taxes the consumption of addictive and non-addictive goods at different rates to improve screening of types and increase income redistribution.
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Bibliographic InfoPaper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 317.
Date of creation: 05 Jul 2012
Date of revision:
Bounded Rationality; Optimal Taxation; Minimal Paternalism; Multidimensional Screening;
Find related papers by JEL classification:
- A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-14 (All new papers)
- NEP-CTA-2012-07-14 (Contract Theory & Applications)
- NEP-PBE-2012-07-14 (Public Economics)
- NEP-PUB-2012-07-14 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty and optimal taxation: In defense of commodity taxes," Journal of Public Economics, Elsevier, vol. 56(2), pages 291-310, February.
- Blomquist, Sören & Christiansen, Vidar, 2004.
"Taxation and Heterogeneous Preferences,"
Working Paper Series
2004:9, Uppsala University, Department of Economics.
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