Optimal Tax Rules for Addictive Consumption
AbstractThis paper studies implementation of the social optimum in a model of habit formation. We consider taxes that address inefficiencies due to negative consumption externalities, imperfect competition, and self-control problems. Our contributions are to: i) account for producers’ market power; and ii) require implementation to be robust and time consistent. Together, these features can imply significantly lower taxes. We provide a general characterization of the optimal tax rule and illustrate it with two examples.
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Bibliographic InfoPaper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 1673.
Date of creation: 2011
Date of revision:
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Postal: Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand
Phone: +64 (4) 463-5353
Fax: +64 (4) 463-5014
Web page: http://www.victoria.ac.nz/sef
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dynamic externalities; internalities; addiction; optimal taxation; time consistent implementation;
This paper has been announced in the following NEP Reports:
- NEP-ACC-2011-08-09 (Accounting & Auditing)
- NEP-ALL-2011-08-09 (All new papers)
- NEP-MIC-2011-08-09 (Microeconomics)
- NEP-PUB-2011-08-09 (Public Finance)
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- Mohajan, Haradhan, 2011. "Optimal Environmental Taxes Due to Health Effect," MPRA Paper 50672, University Library of Munich, Germany, revised 17 Apr 2011.
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