Taxing Sin Goods and Subsidizing Health Care

23 Pages Posted: 28 Feb 2012

See all articles by Helmuth Cremer

Helmuth Cremer

University of Toulouse (GREMAQ & IDEI); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE)

Dario Maldonado

Universidad del Rosario - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2012

Abstract

We study the taxation of sin goods in a two‐period, three‐good model. Individuals can buy health care to compensate for the damages caused by their earlier sin‐good consumption. Individuals are myopic and underestimate the effect of the sinful consumption on health; in their second period, they may acknowledge their mistake or persist in their error. We characterize and compare the first‐best and the (linear) second‐best taxes in these different settings. In particular, we examine how the results are affected by the way sin‐good consumption and health care interact in health production technology.

Keywords: Paternalism, behavioral economics, dual self versus single self

JEL Classification: H21, I18

Suggested Citation

Cremer, Helmuth and De Donder, Philippe and Maldonado, Dario and Pestieau, Pierre, Taxing Sin Goods and Subsidizing Health Care (March 2012). The Scandinavian Journal of Economics, Vol. 114, Issue 1, pp. 101-123, 2012, Available at SSRN: https://ssrn.com/abstract=2012215 or http://dx.doi.org/10.1111/j.1467-9442.2011.01666.x

Helmuth Cremer (Contact Author)

University of Toulouse (GREMAQ & IDEI) ( email )

Toulouse, 31000
France
+33 1 6112 8606 (Phone)
+33 1 6112 8637 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Philippe De Donder

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Dario Maldonado

Universidad del Rosario - Department of Economics ( email )

Casa Pedro Fermín
Calle 14 # 4-69
Bogota
Colombia

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium
+32 4 366 3108 (Phone)
+32 4 366 3106 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

34 Vopie Roman Pays
Louvain la Neuve
Belgium

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