Taxing Sin Goods and Subsidizing Health Care*

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.

Endogenous differential mortality, non-contractible effort and non-linear taxation

“…The first terms on the right-hand side of (10) and of (11) are similar to (9) and are greater than one. In (11), the additional term inside brackets results from the introduction of the incentive constraint and is lower than one since π e * γ 1 , d 2 < π e * γ 2 , d 2 .…”

“…As will be shown in the rest of the paper, the laissez-faire level of effort is then generally too high compared with the optimal one. 9 We finally compare individuals' laissez-faire allocations:…”

Travailler moins pour travailler plus longtemps

“…C'est de cette question que traite cet article. Il s'inscrit dans la ligne des travaux sur les biens peccamineux (« sin goods »), biens dont la consommation a un effet néfaste sur la santé, effet souvent décalé dans le temps et ignoré par les individus (voir O'DONOGHUE et RABIN [2003, 2006] et CREMER et al [2010 Nous développons un modèle dans lequel les travailleurs vivent deux périodes. Dans la première période, ils peuvent choisir un volume de travail élevé qui leur apporte des revenus immédiats, mais qui a des conséquences néfastes sur leur santé au bout de quelque temps.…”

Earmarking and the political support of fat taxes

“…6 There seems to exist a consensus that the population is generally poorly informed about the attributes of a healthy diet (Vereecken and Maes, 2010;Grimes et al, 2009;and Schwartz et Byrd-Bredbenner, 2005) and there is evidence that greater nutritional knowledge is related to better nutrition (Pollard et al, 2010;and Vereecken and Maes, 2010). 7 This is pretty much in line with the allocation of fat tax suggested by Leicester and Windmeijer (2004, page 10) who argue that " Funds from a 'fat tax' could be used to finance healthy eating advice in schools or on television, for the NHS, etc. Alternatively, the income could be used to reduce other taxes or provide subsidies on healthy foods or exercise equipment."…”

“…In other words, the proceeds of the fat tax are earmarked so that some fraction is used to finance health care while the remaining part finances a subsidy on the healthy good consumption (for the later see Yaniv et al, 2009). 7 This earmarking rule is determined by a welfare maximizing (utilitarian or Rawlsian) government at a constitutional stage which precedes the vote over the fat tax. It is by now well known that earmarking is at best useless in a purely normative setting.…”