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

Jiunn Wang, Laura Marsiliani and Thomas Renström

Economics Letters, 2020, vol. 186, issue C

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.

Keywords: Optimal taxation; Sin tax; Pigouvian tax; Income tax; Health care (search for similar items in EconPapers)
JEL-codes: D91 H21 I18 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519303854

DOI: 10.1016/j.econlet.2019.108767

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