We study optimal taxation and regulation of sin goods, i.e., goods which are enjoyable to consume but create negative health consequences in the future. We …nd under which conditions the two instruments are jointly or separately used, within a setting in which individuals are time-inconsistent (and thus consume too much of the sin good), regulation makes sin good consumption less pleasurable, and taxation involves administrative and compliance costs. For high ine¢ ciency of regulation, only taxation is used and it may be higher or lower than the …rst-best depending on the price elasticity of demand. For high inefficiency of taxation, only regulation is used to an extent which depends on its e¤activeness in terms of quantity reduction relative to the disutility it generates. For moderate inefficiency of either instrument, taxation and regulation are both optimally used.

Taxing and Regulating Vices

MENICHINI, Anna Maria Cristina;ROMANO, Maria Grazia
2016

Abstract

We study optimal taxation and regulation of sin goods, i.e., goods which are enjoyable to consume but create negative health consequences in the future. We …nd under which conditions the two instruments are jointly or separately used, within a setting in which individuals are time-inconsistent (and thus consume too much of the sin good), regulation makes sin good consumption less pleasurable, and taxation involves administrative and compliance costs. For high ine¢ ciency of regulation, only taxation is used and it may be higher or lower than the …rst-best depending on the price elasticity of demand. For high inefficiency of taxation, only regulation is used to an extent which depends on its e¤activeness in terms of quantity reduction relative to the disutility it generates. For moderate inefficiency of either instrument, taxation and regulation are both optimally used.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11386/4676955
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