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
2020-01-01
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.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.