The Theory and Practice of Selective Consumption Taxation

18 Pages Posted: 27 Apr 2018

See all articles by Adam J. Hoffer

Adam J. Hoffer

University of Wisconsin - La Crosse

William F. Shughart

Huntsman School of Business; The Independent Institute

Date Written: January 3, 2018


Selective consumption taxes apply to specific goods rather than to a broad range of goods. Policymakers justify these taxes on the basis of the goal of reducing societal problems — like the consumption of alcohol or cigarettes — and nudging consumers toward healthier choices. But this chapter shows that selective consumption taxes are being applied to more and more goods, and they fail many of the criteria for sound tax policy. Selective consumption taxes fail the neutrality criterion. Economists support “neutral” tax policies that do not distort consumer choice. Sin taxes, with the stated goal of reducing the consumption of selected goods that consumers want to buy, violate neutrality. Selective consumption taxes also fail the equity criterion. Because consumers pay sin taxes based on their individual choices, people with similar incomes may face different tax burdens. The costs of sin taxes tend to fall hardest on low-income people, who tend to spend a higher percentage of their income on excise taxes.

Keywords: selective taxation, taxation, tax policy, behavioral economics, tax subsidies, sin taxes

JEL Classification: H2, H71

Suggested Citation

Hoffer, Adam J. and Shughart, William Franklin, The Theory and Practice of Selective Consumption Taxation (January 3, 2018). Excerpt from Adam J. Hoffer and Todd Nesbit, eds., For Your Own Good: Taxes, Paternalism, and Fiscal Discrimination in the Twenty-First Century. Arlington, VA: Mercatus Center at George Mason University, 2018.. Available at SSRN:

Adam J. Hoffer (Contact Author)

University of Wisconsin - La Crosse ( email )

1725 State Street
La Crosse, WI 54601
United States

William Franklin Shughart

Huntsman School of Business ( email )

3565 Old Main Hill
Logan, UT 84322-3565
United States

The Independent Institute ( email )

100 Swan Way
Oakland, CA 94621-1428
United States


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