We study the optimal taxation and regulation of sin goods — goods which are enjoyable to consume but create future negative health consequences — within a setting in which individuals are time-inconsistent (and thus consume too much), regulation makes sin good consumption less pleasurable and taxation involves administrative and compliance costs. Unlike the previous literature, we …nd that regulation can be benefi…cial even when corrective taxes are available and individuals are homogeneous. Moreover, despite the inefficiencies associated with the use of both instruments, the consumption of the sin good may fall short of the fi…rst-best. The results are robust to consumers ’heterogeneity.

Taxing and regulating vices

MENICHINI, Anna Maria Cristina;ROMANO, Maria Grazia
2020

Abstract

We study the optimal taxation and regulation of sin goods — goods which are enjoyable to consume but create future negative health consequences — within a setting in which individuals are time-inconsistent (and thus consume too much), regulation makes sin good consumption less pleasurable and taxation involves administrative and compliance costs. Unlike the previous literature, we …nd that regulation can be benefi…cial even when corrective taxes are available and individuals are homogeneous. Moreover, despite the inefficiencies associated with the use of both instruments, the consumption of the sin good may fall short of the fi…rst-best. The results are robust to consumers ’heterogeneity.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11386/4716776
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