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Taxing and Regulating Vices



We study the sin taxes and regulatory measures that it is optimal to implement when consumers are time-inconsistent and there are inefficiencies associated with the use of either instrument. For high inefficiency of regulation, only taxation is used and it may be higher or lower than the first-best depending on the price elasticity of demand. For high inefficiency of taxation, only regulation is used to an extent which depends on its effectiveness in terms of quantity reduction relative to the disutility it generates. For moderate inefficiency of either instrument, taxation and regulation are both optimally used.

Suggested Citation

  • Annamaria Menichini & Giovanni Immordino & Maria Grazia Romano, 2016. "Taxing and Regulating Vices," CSEF Working Papers 434, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:434

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    References listed on IDEAS

    1. Martin L. Weitzman, 1974. "Prices vs. Quantities," Review of Economic Studies, Oxford University Press, vol. 41(4), pages 477-491.
    2. Jonathan Gruber, 2001. "Tobacco at the Crossroads: The Past and Future of Smoking Regulation in the United States," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 193-212, Spring.
    3. O'Donoghue, Ted & Rabin, Matthew, 2006. "Optimal sin taxes," Journal of Public Economics, Elsevier, vol. 90(10-11), pages 1825-1849, November.
    4. Jensen, Jørgen Dejgård & Smed, Sinne, 2013. "The Danish tax on saturated fat – Short run effects on consumption, substitution patterns and consumer prices of fats," Food Policy, Elsevier, vol. 42(C), pages 18-31.
    5. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier.
    6. Diamond, Peter & Koszegi, Botond, 2003. "Quasi-hyperbolic discounting and retirement," Journal of Public Economics, Elsevier, vol. 87(9-10), pages 1839-1872, September.
    7. Adit Laixuthai & Frank J. Chaloupka, 1993. "Youth Alcohol Use And Public Policy," Contemporary Economic Policy, Western Economic Association International, vol. 11(4), pages 70-81, October.
    8. Weitzman, Martin L, 1978. "Optimal Rewards for Economic Regulation," American Economic Review, American Economic Association, vol. 68(4), pages 683-691, September.
    9. Ashlesha Datar & Nancy Nicosia, 2012. "Junk Food in Schools and Childhood Obesity," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 31(2), pages 312-337, March.
    10. Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
    11. Giovanni Immordino & Anna Maria C. Menichini & Maria Grazia Romano, 2015. "Inefficient Taxation of Sin Goods," CSEF Working Papers 412, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    12. repec:aph:ajpbhl:1996:86:7:956-965_2 is not listed on IDEAS
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    More about this item


    Hyperbolic preferences; Taxation; Regulation; Consumption restrictions; Sin goods;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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