The Political Economy of Sin Taxes

46 Pages Posted: 19 May 2009

See all articles by Markus Haavio

Markus Haavio

Bank of Finland - Research

Kaisa Kotakorpi

University of Turku - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 2009

Abstract

We analyse the determination of taxes on harmful goods when consumers have self-control problems. We show that under reasonable assumptions, the socially optimal corrective tax exceeds the average distortion caused by self-control problems. Further, we analyse how individuals with self-control problems would vote on taxes on the consumption of harmful goods, and show that the equilibrium tax is typically below the socially optimal level. When the redistributive effects of sin taxes are taken into account, the difference between the social optimum and equilibrium is small at low levels of harm, but becomes more pronounced when consumption is more harmful.

Keywords: excise taxation, voting, self-control

JEL Classification: H21, H30, D72

Suggested Citation

Haavio, Markus and Kotakorpi, Kaisa, The Political Economy of Sin Taxes (May 2009). CESifo Working Paper Series No. 2650, Available at SSRN: https://ssrn.com/abstract=1406953

Markus Haavio

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

Kaisa Kotakorpi (Contact Author)

University of Turku - Department of Economics ( email )

Turku
Finland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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