TaxProf Blog

Editor: Paul L. Caron, Dean
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Wednesday, November 15, 2017

Lockwood Presents Regressive Sin Taxes Today At Penn

LockwoodBenjamin B. Lockwood (Pennsylvania) presents Regressive Sin Taxes (with Dmitry Taubinsky (UC-Berkeley)) at Pennsylvania today as part of its Tax Policy Workshop Series hosted by Chris Sanchirico and Reed Shuldiner:

A common objection to “sin taxes” — corrective taxes on goods like cigarettes, alcohol, and sugary drinks, which are believed to be over-consumed — is that they fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. On the one hand, redistributive concerns amplify the corrective benefits of a sin tax when sin good consumption is concentrated on the poor, even when bias and demand elasticities are constant across incomes. On the other hand, a sin tax can generate regressivity costs, raising more revenue from the poor than from the rich.

Sin tax regressivity can be offset by targeted transfers or income tax reforms if differences in sin good consumption are driven by income effects, but not if they are driven by preference heterogeneity, and not if the indirect incentives the sin tax generates for labor supply decisions are not salient. The price elasticity of demand determines the extent to which corrective benefits versus regressivity costs determine the size of the optimal tax. We implement our optimal tax formulas in a calibrated model of sugar-sweetened beverage consumption for a range of parameter values suggested by empirical work.

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So high taxes on cigarettes and alcohol have led to the opioid epidemic. But if we just use the tax money on paying teachers higher pensions and more playgrounds. then adults will stop using untaxed illegal opioids that aren't any more expensive than taxed cigarettes and alcohol.
Uh, no.

Posted by: Unlicensed Drug-dealer | Nov 15, 2017 4:02:34 PM