Optimal sin taxes. Jury still out on whether sin taxes change behavior 2019-01-28

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Benjamin B. Lockwood

optimal sin taxes

But to be truly Pigouvian, the tax would be equivalent to society's cost of treating lung cancer. This becomes an unreliable and shifting benchmark Jaeger 2011. Despite these sources of confusion, it remains the case that a the possibility of a double dividend depends on specifics specific to the demands and the economy in which an environmental tax is being considered, and b that the efficiency gains with revenue recycling will be greater, potentially significantly greater, than when revenues are not collected and used to reduce pre-existing revenue-raising taxes. Second, when the marginal social cost exceeds the private marginal benefit, the cost-creator over-produces the product. In other words, the net private product of alcohol businesses is peculiarly large relative to the net social product of the same business. This paper allows for the possibility consumers may be inattentive to or unaware of some commodity taxes when making choices about income. What are the specifics of the reform? In general, however, there may be room for im- provement over the imposition of a single tax schedule.

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Benjamin B. Lockwood

optimal sin taxes

Three years later, congestion inside the zone had fallen by a quarter. Are they a good idea? Participants earn money in proportion to the outcome reported and, thus, have an incentive to over-report. These results warn policy makers about the non-trivial relationship between taxation charges and dishonesty. The for its transport system. Most humans exhibit present-biased prefer- ences: They have a tendency to pursue imme- diate gratification in a way that they themselves disapprove of in the long run. They get diabetes at the same rate.

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Jury still out on whether sin taxes change behavior

optimal sin taxes

We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. In the end, Baumol argues that the best solution is to set a minimum standard of acceptability for negative externalities, and create tax systems to achieve those minimum standards. This idea received scant attention until the early 1990s, when the economics of climate change attracted attention to the topic of environmental taxes. Increasing a sin tax is often more popular than increasing other taxes. But one of the interesting questions going into this was to what extent the soda tax — which is actually imposed on the distributors who supply sodas to grocery stores — would be passed on to consumers in the form of higher soda prices. To illus- trate our approach to studying optimal pater- nalism and some of the principles above, we analyze a simple model of sin taxes for un- healthy goods.

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Optimal sin taxes

optimal sin taxes

But everyone behind him does. Glen Weyl 2017 , , Journal of Political Economy, 125 5 , pp. In it, Pigou argues that industrialists seek their own marginal private interest. The best option is to add an entry tax for potential firms and a subsidy for current firms to restrict a movement in the number of firms. We also question the cross relation between risk aversion and time preference. Frederick, Shane; Loewenstein, George and O'Donoghue, Ted.

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Types of Taxes

optimal sin taxes

This immediately increases the marginal social cost of smoke, which would require a tax increase on the factory. Individuals in my model must choose when and whether to complete a task, but may forget or procrastinate. We analyze the optimal timing of such choice-enhancing policies when a firm can strategically react to them. We show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus. A more complete framework generates policy recommendations beyond both nudges and neoclassical economic prescriptions. The view that people can always rationally opt out has led policymakers to set these powerful defaults at the wrong levels, resulting in counterproductive policies.

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Sin Taxes: Size, Growth, and Creation of the Sindustry

optimal sin taxes

Other methods such as command and control regulations or subsidies assume that the government has a complete knowledge of the market, which is almost never the case, and can often lead to inefficiencies and market failure through behavior by individuals and firms. It becomes a life issue that a lot of these people are not able to overcome. Beside the relative slope of the marginal damage, the substitutability and the distribution of shocks play a role in the comparison. When serious analysis is applied to the problems of new paternalism, especially its epistemic problems, it is easy to see that the dynamic of paternalist arguments leads to the expansion of control of individual behavior. First, as already noted, the party receiving the social benefit does not pay for it, and the one creating the social harm does not pay for it.


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Regressive Sin Taxes

optimal sin taxes

Durch Förderungen gesunder oder umweltschonender Alternativen und die Kombination mit anderen Maßnahmen kann die Wirkung von Lenkungssteuern verstärkt werden. In other words, economists ought to treat the analysis of optimal paternal- ism as a mechanism-design problem when some agents might be boundedly rational. Goulder, Parry, and Burtraw agree that the net social welfare after the implementation of a tax hinges on the preexisting tax rate. Individuals differ in income and in their degree of misperception; they vote over a fat tax according to their misperceived utility. But the social benefit from taxes on these goods is debatable. In addition, we estimate market conduct and associated price distortions in a sub-game perfect, dynamic-feedback model, and compare the results with those derived from an open-loop model.

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Regressive Sin Taxes

optimal sin taxes

They lobby both to counter the imposition of new sin taxes and to prevent existing tax rates from rising. In this paper, we examine the optimal policies for sin goods and health care in a two-period economy. The term 'double dividend' became widely used following its introduction by David Pearce in 1991. To investigate optimal taxation with heterogenous consumers, we must make interpersonal trade- offs. Interest in the field of psychology and economics has grown in recent years, stimulated largely by accumulating evidence that the neoclassical model of consumer decisionmaking provides an inadequate description of human behaviour in many economic situations.


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EconPapers: Optimal sin taxes

optimal sin taxes

Because such taxes counteract over-consumption by consumers with self-control problems while at the same time they naturally redistribute income to consumers with no self-control problems who consume less , such taxes can even create Pareto improvements. It was between 9-12 pounds depending on time of day and how far into the city the driver went. The decision maker considered here is capable of manipulating information to serve her self-interests, but a tradeoff between distorted beliefs and distorted actions constrains the extent of information manipulation. The next major part of the course will explore these same issues for government interventions in health insurance markets. Throughout the course we will discuss the tradoffs - for example between the protection and distortion of social insurance programs -- that influence government's optional role.


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Optimal sin taxes

optimal sin taxes

In other words, economists ought to treat the analysis of optimal paternalism as a mechanism-design problem when some agents might be boundedly rational. Lessons for savings, addiction, and elsewhere are discussed. Volunteer subjects worked for money in six procedures in which the probability of a payment from either of two alternatives was 1. In this paper, we discuss how merit good arguments may contribute to discussions about sustainability. Others believe that they are the most regressive form of taxation, since poorer people wind up paying a larger portion of their income in sales taxes than wealthier individuals do. A policy that helps those agents making one common error may hurt those malung another common error, even if the policy is virtually harmless to fully rational people.

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