Education, Taxation and the Perceived Effects of Sin Good Consumption

Anna Maria Menichini, Giovanni Immordino and Maria Romano

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

Abstract: In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education initiatives and/or taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation and the relative efficiency of educational measures, the two instruments can be used as substitutes or complements. When both optimistic and pessimistic consumers coexist, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on pessimistic ones. In this framework, educational measures, by aligning both consumers' perceptions closer to the true probability of health damages, are more effective than taxation.

Keywords: Overoptimism; Taxation; Educational initiatives; Sin goods. (search for similar items in EconPapers)
JEL-codes: D03 H21 L51 (search for similar items in EconPapers)
Date: 2019-07-20
New Economics Papers: this item is included in nep-hea and nep-pub
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Related works:
Journal Article: Education, taxation and the perceived effects of sin good consumption (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:536

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