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Soda tax incidence and design under monopoly

Helmuth Cremer (), Catarina Goulão and Jean-Marie Lozachmeur

No 7525, CESifo Working Paper Series from CESifo Group Munich

Abstract: We consider an unhealthy good, such as a sugar-sweetened beverage, the health damages of which are misperceived by consumers. The sugar content is endogenous. We first study the solution under “pseudo” perfect competition. In that case a simple Pigouvian tax levied per unit of output but proportional to the sugar content is sufficient to achieve a first best solution. Then we consider a monopoly. Market power affects both output and sugar content, possibly in opposite directions, and these effects have to be balanced against Pigouvian considerations. We show that, nevertheless, a tax per unit of output achieves an efficient solution, but it must be an affine function of the sugar content; taxing “grams of sugar” is no longer sufficient. Interestingly, both the total tax as well as its sugar component can be positive as well as negative.

Keywords: sin tax; tax incidence; misperception; monopoly (search for similar items in EconPapers)
JEL-codes: H22 I12 D42 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-com, nep-hea and nep-pbe
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