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Lifestyle taxes in the presence of profit shifting

Author

Listed:
  • Rosella Levaggi

    (University of Brescia)

  • Carmen Marchiori

    (University of Brescia)

  • Paolo M. Panteghini

    (University of Brescia
    CESifo and AccounTax Lab)

Abstract

The consumption of unhealthy products generates significant externalities in terms of increased future health care costs to society. Lifestyle taxes are attracting increasing attention as a measure by which to discourage over-consumption and correct such externalities. This paper focuses on the trade-off that governments face in setting a lifestyle tax when the producer of the taxed good is a multinational which may engage in profit-shifting activities. In the absence of profit shifting, if governments do care about corporate tax revenue, the optimal lifestyle tax is always lower than the marginal health care cost. We show that, by shrinking the corporate tax base, profit shifting has the interesting side effect of helping to close the gap between the lifestyle tax and the marginal health care cost.

Suggested Citation

  • Rosella Levaggi & Carmen Marchiori & Paolo M. Panteghini, 2022. "Lifestyle taxes in the presence of profit shifting," Journal of Economics, Springer, vol. 137(1), pages 81-96, September.
    • Handle: RePEc:kap:jeczfn:v:137:y:2022:i:1:d:10.1007_s00712-022-00799-3
    DOI: 10.1007/s00712-022-00799-3
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    More about this item

    Keywords

    Lifestyle tax; Multinational firm; Profit shifting; Health care costs;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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