Citation

Discussion Paper Details

Please find the details for DP6777 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Taxing Sin Goods and Subsidizing Health Care

Author(s): Helmuth Cremer, Philippe De Donder, Darío Maldonado and Pierre Pestieau

Publication Date: April 2008

Keyword(s): behavioral economics, dual vs single self and paternalism

Programme Area(s): Public Economics

Abstract: We consider a two-period model. In the first period, individuals consume two goods: one is sinful and the other is not. The sin good brings pleasure but has a detrimental effect on second period health and individuals tend to underestimate this effect. In the second period, individuals can devote part of their saving to improve their health status and thus compensate for the damage caused by their sinful consumption. We consider two alternative specifications concerning this second period health care decision: either individuals acknowledge that they have made a mistake in the first period out of myopia or ignorance, or they persist in ignoring the detrimental effect of their sinful consumption. We study the optimal linear taxes on sin good consumption, saving and health care expenditures for a paternalistic social planner. We compare those taxes in the two specifications. We show under which circumstances the first best outcome can be decentralized and we study the second best taxes when saving is unobservable.

For full details and related downloads, please visit: https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6777

Bibliographic Reference

Cremer, H, De Donder, P, Maldonado, D and Pestieau, P. 2008. 'Taxing Sin Goods and Subsidizing Health Care'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=6777