Optimal Libertarian Sin Taxes

Matteo Bassi ()
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Matteo Bassi: Università di Napoli Federico II and CSEF

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: This paper studies the optimal fiscal treatment of addictive goods (cigarettes, drugs, fatty foods, alcohol, gambling etc.). It shows that, when agents have private information about their productivity levels and their degree of rationality, the Atkinson and Stiglitz result of optimal uniform commodity taxation does not hold: addictive and non-addictive goods should be taxed at different rates. Depending on the direction of redistribution, the addictive good should be taxed more or less than the non-addictive good. Differential commodity taxation is not driven by the planner’s paternalism, but only by incentive considerations. A tax authority which fully respects consumers’ sovereignty taxes the consumption of addictive and non-addictive goods at different rates to improve screening of types and increase income redistribution.

Keywords: Bounded Rationality; Optimal Taxation; Minimal Paternalism; Multidimensional Screening (search for similar items in EconPapers)
JEL-codes: A12 D91 E21 H55 (search for similar items in EconPapers)
Date: 2012-07-05
New Economics Papers: this item is included in nep-cta, nep-pbe and nep-pub
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:317

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