Optimal sin taxes in the presence of income taxes and health care

Marsiliani, L.; Renstrom, T.I.; Wang, J.

Abstract

We present a unified approach to analyze sin taxes, by allowing for a non-paternalistic view, stemming from crowding-out externalities, in addition to the paternalistic view. Analytical results show the additive property between the Pigouvian and the efficiency elements in optimal sin taxes. The Pigouvian element can be decomposed into externality components additively. Although the Pigouvian elements are lower in the second-best, the second-best optimal sin taxes are not necessarily lower due to the presence of the efficiency element. Calibration results show that the implementation of sin taxes has double-dividends, which improve not only health but also economic performance and welfare.

Citation

Marsiliani, L., Renstrom, T., & Wang, J. (2020). Optimal sin taxes in the presence of income taxes and health care. Economics Letters, 186, Article 108767. https://doi.org/10.1016/j.econlet.2019.108767

• Journal Article Type: Article
• Acceptance Date: Oct 15, 2019
• Online Publication Date: Oct 23, 2019
• Publication Date: Jan 1, 2020
• Deposit Date: Oct 16, 2019
• Publicly Available Date: Apr 23, 2021
• Journal: Economics Letters
• Print ISSN: 0165-1765
• Electronic ISSN: 1873-7374
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 186
• Article Number: 108767
• DOI: https://doi.org/10.1016/j.econlet.2019.108767
• Public URL: https://durham-repository.worktribe.com/output/1282689