Paternalistic Taxation of Unhealthy Food and the Intensive Versus Extensive Margin of Obesity

30 Pages Posted: 7 May 2018

See all articles by Zarko Y. Kalamov

Zarko Y. Kalamov

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management

Marco Runkel

Berlin University of Technology

Date Written: March 05, 2018

Abstract

This paper shows that if an individual’s health costs are U-shaped in weight with a minimum at some healthy weight level and if the individual has both self control problems and rational motives for over- or underweight, the optimal paternalistic tax on unhealthy food mitigates the individual’s weight problem (intensive margin), but does not induce the individual to choose healthy weight (extensive margin). Implementing healthy weight requires a further distortion (e.g. subsidy on other goods), which may render the tax on unhealthy food inferior to the option of not taxing the individual at all. In addition, with heterogeneous individuals the optimal uniform paternalistic tax may have the negative side effect of rendering otherwise healthy individuals underweight.

Keywords: sin tax, paternalism, obesity, extensive versus intensive margin

JEL Classification: D030, D110, H210, I180

Suggested Citation

Kalamov, Zarko Yordanov and Runkel, Marco, Paternalistic Taxation of Unhealthy Food and the Intensive Versus Extensive Margin of Obesity (March 05, 2018). CESifo Working Paper Series No. 6911. Available at SSRN: https://ssrn.com/abstract=3167140

Zarko Yordanov Kalamov

Technische Universität Berlin (TU Berlin) - Faculty of Economics and Management ( email )

Berlin, 10585
Germany

Marco Runkel (Contact Author)

Berlin University of Technology ( email )

Berlin
Germany

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