Education, taxation and the perceived effects of sin good consumption

Giovanni Immordino, Anna Maria Menichini and Maria Romano

International Tax and Public Finance, 2022, vol. 29, issue 4, No 7, 985-1013

Abstract: 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 and taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation, the two instruments can be substitutes or complements. When consumers are heterogeneous, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on both pessimistic and rational ones. In this framework, educational measures, by aligning biased consumers’ perceptions closer to the true probability of health damages, are more effective than taxation.

Keywords: Overoptimism; Taxation; Education; Sin goods (search for similar items in EconPapers)
JEL-codes: H3 I2 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Education, Taxation and the Perceived Effects of Sin Good Consumption (2019)
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DOI: 10.1007/s10797-021-09701-1

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