An alternative way to model merit good arguments

Fred Schroyen ()

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: Besley (1988) uses a scaling approach to model merit good arguments in commodity tax policy. In this paper, I question this approach on the grounds that it produces 'wrong' recommendations--taxation (subsidisation) of merit (demerit) goods--whenever the demand for the (de)merit good is inelastic. I propose an alternative approach that does not suffer from this deficiency, and derive the ensuing first and second best tax rules, as well as the marginal cost expressions to perform tax reform analysis.

Keywords: merits goods; commodity taxation; tax reform analysis (search for similar items in EconPapers)
JEL-codes: H21 (search for similar items in EconPapers)
Pages: 15
Date: 2003-10-21
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Persistent link: https://EconPapers.repec.org/RePEc:aub:autbar:595.03

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