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Tax Reform, Unhealthy Commodities and Endogenous Health

Author

Listed:
  • Jiunn Wang

    (Durham Business School)

  • Laura Marsiliani

    (Durham Business School)

  • Thomas Renstrom

    (Durham Business School)

Abstract

This paper explores how tax reforms with taxes on unhealthy commodities impact consumer behaviours and welfare when individual health is endogenised. We employ a dynamic general equilibrium model which includes both goods and health sectors. Although unhealthy commodities provide utility, they pose a detrimental effect on health. The analytical results show that the introduction of taxes on unhealthy commodities does not have direct effects on health in the steady state. However, based on our simulation results, with a revenue-neutral tax reform where labour income taxes are adjusted, the introduction of taxes on unhealthy commodities improves both health and welfare, but reduces leisure in the long run. On the other hand, a tax reform where capital income taxes are adjusted contributes to even higher welfare as both health and leisure improve. Our analysis may inform policy making decisions on taxation of unhealthy commodities when government can adjust pre-existing taxes

Suggested Citation

  • Jiunn Wang & Laura Marsiliani & Thomas Renstrom, 2017. "Tax Reform, Unhealthy Commodities and Endogenous Health," Working Papers 2017_12, Durham University Business School.
    • Handle: RePEc:dur:durham:2017_12
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    Cited by:

    1. Wang, Jiunn & Marsiliani, Laura & Renström, Thomas, 2020. "Optimal sin taxes in the presence of income taxes and health care," Economics Letters, Elsevier, vol. 186(C).
    2. Maria Alessandra Antonelli & Valeria De Bonis & Angelo Castaldo & Alessandrao Gandolfo, 2022. "Sin goods taxation: an encompassing model," Public Finance Research Papers 52, Istituto di Economia e Finanza, DSGE, Sapienza University of Rome.

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    More about this item

    Keywords

    Unhealthy commodities taxation; endogenous health; tax reform;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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