Optimal Internality Taxation of Product Attributes

Andreas Gerster () and Michael Kramm

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: This paper explores how a benevolent policy maker should optimally tax (or subsidize) product attributes when consumers are behaviorally biased. We demonstrate that market choices are informative about biases, which can be exploited for targeting biased consumers via a non-linear tax schedule. We show that its properties depend on few parameters of the joint distribution of consumer valuations and biases. Furthermore, we provide a novel justification for behaviorally motivated product standards and derive when a combination of taxes and standards is optimal. We illustrate our findings based on a numerical example from the lightbulb market.

Keywords: Optimal commodity taxation; non-linear taxation; internalities; behavioral economics; public economics; environmental economics (search for similar items in EconPapers)
JEL-codes: D04 D82 H21 Q58 (search for similar items in EconPapers)
Pages: 60
Date: 2024-02
New Economics Papers: this item is included in nep-ene, nep-env, nep-pbe and nep-pub
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Journal Article: Optimal Internality Taxation of Product Attributes (2024)
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