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Optimal tax rules and addictive consumption

Author

Listed:
  • Bossi, Luca
  • Calcott, Paul
  • Petkov, Vladimir

Abstract

This paper studies implementation of the social optimum in a model of addictive consumption. We consider corrective taxes that address inefficiencies due to negative externalities, imperfect competition, and self-control problems. Our setup allows us to evaluate how such taxes are affected by (i) market power and (ii) a requirement for implementation to be time consistent. Together, these features can imply significantly lower taxes. We provide a general characterization of the optimal tax rule and illustrate it with two examples.

Suggested Citation

  • Bossi, Luca & Calcott, Paul & Petkov, Vladimir, 2013. "Optimal tax rules and addictive consumption," Journal of Economic Dynamics and Control, Elsevier, vol. 37(5), pages 984-1000.
    • Handle: RePEc:eee:dyncon:v:37:y:2013:i:5:p:984-1000
    DOI: 10.1016/j.jedc.2013.01.009
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    Cited by:

    1. Paul Calcott, 2022. "Regulating ingredients in sin goods," American Journal of Agricultural Economics, John Wiley & Sons, vol. 104(3), pages 1120-1139, May.

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    More about this item

    Keywords

    Dynamic externalities; Internalities; Addiction; Optimal taxation; Time consistent implementation;
    All these keywords.

    JEL classification:

    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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