The Effects of Sin Taxes and Advertising Restrictions in a Dynamic Equilibrium

Rossi Abi-Rafeh, Pierre Dubois, Rachel Griffith and Martin O'Connell

American Economic Journal: Microeconomics, 2026, vol. 18, issue 3, 39-76

Abstract: We develop a dynamic equilibrium model of firm competition to analyze the effects of counterfactual policies, such as taxes and advertising restrictions, on pricing, advertising, consumption, and welfare. Using micro-level data, we estimate how consumer exposure to television commercials influences product choice and model firms' strategic competition over advertising budgets and pricing. We exploit firms' practice of delegating advertising slot decisions to agencies to link consumer-level advertising variation to firms' strategic choices. Our results show that a sugar-sweetened beverage tax reduces advertising, while the additional impact of advertising restrictions is significantly weaker when a tax is already in place.

JEL-codes: D12 D22 H25 L13 L66 L82 M37 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/mic.20240380

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