Optimal tax rules and addictive consumption

Luca Bossi, Paul Calcott and Vladimir Petkov

Journal of Economic Dynamics and Control, 2013, vol. 37, issue 5, 984-1000

Abstract: This paper studies implementation of the social optimum in a model of addictive consumption. We consider corrective taxes that address inefficiencies due to negative externalities, imperfect competition, and self-control problems. Our setup allows us to evaluate how such taxes are affected by (i) market power and (ii) a requirement for implementation to be time consistent. Together, these features can imply significantly lower taxes. We provide a general characterization of the optimal tax rule and illustrate it with two examples.

Keywords: Dynamic externalities; Internalities; Addiction; Optimal taxation; Time consistent implementation (search for similar items in EconPapers)
JEL-codes: D72 D91 E62 H55 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:37:y:2013:i:5:p:984-1000

DOI: 10.1016/j.jedc.2013.01.009

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