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Education, Taxation and the Perceived Effects of Sin Good Consumption

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Abstract

In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education initiatives and/or taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation and the relative efficiency of educational measures, the two instruments can be used as substitutes or complements. When both optimistic and pessimistic consumers coexist, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on pessimistic ones. In this framework, educational measures, by aligning both consumers' perceptions closer to the true probability of health damages, are more effective than taxation.

Suggested Citation

  • Annamaria Menichini & Giovanni Immordino & Maria Grazia Romano, 2019. "Education, Taxation and the Perceived Effects of Sin Good Consumption," CSEF Working Papers 536, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:536
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    File URL: http://www.csef.it/WP/wp536.pdf
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    References listed on IDEAS

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    1. Giovanni Immordino & Anna Maria C. Menichini & Maria Grazia Romano, 2020. "Taxing and Regulating Vices," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 622-647, April.
    2. 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.
    3. Jon A Krosnick & Neil Malhotra & Cecilia Hyunjung Mo & Eduardo F Bruera & LinChiat Chang & Josh Pasek & Randall K Thomas, 2017. "Perceptions of health risks of cigarette smoking: A new measure reveals widespread misunderstanding," PLOS ONE, Public Library of Science, vol. 12(8), pages 1-23, August.
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    More about this item

    Keywords

    Overoptimism; Taxation; Educational initiatives; Sin goods.;
    All these keywords.

    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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