Regressive Sin Taxes

Benjamin Lockwood and Dmitry Taubinsky

No 23085, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: A common objection to “sin taxes”—corrective taxes on goods like cigarettes, alcohol, and sugary drinks, which are believed to be over-consumed—is that they fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. On the one hand, redistributive concerns amplify the corrective benefits of a sin tax when sin good consumption is concentrated on the poor, even when bias and demand elasticities are constant across incomes. On the other hand, a sin tax can generate regressivity costs, raising more revenue from the poor than from the rich. Sin tax regressivity can be offset by targeted transfers or income tax reforms if differences in sin good consumption are driven by income effects, but not if they are driven by preference heterogeneity, and not if the indirect incentives the sin tax generates for labor supply decisions are not salient. The price elasticity of demand determines the extent to which corrective benefits versus regressivity costs determine the size of the optimal tax. We implement our optimal tax formulas in a calibrated model of sugar-sweetened beverage consumption for a range of parameter values suggested by empirical work.

JEL-codes: H0 I18 I3 K32 K34 (search for similar items in EconPapers)
Date: 2017-01
New Economics Papers: this item is included in nep-pbe and nep-pub
Note: AG EH LE PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.nber.org/papers/w23085.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23085

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23085

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().