Regressive Sin Taxes, With an Application to the Optimal Soda Tax / Hunt Allcott, Benjamin Lockwood, Dmitry Taubinsky.

Format:

Book

Author/Creator:

Allcott, Hunt.

Contributor:

National Bureau of Economic Research.

Lockwood, Benjamin.

Taubinsky, Dmitry.

Series:

Working Paper Series (National Bureau of Economic Research) no. w25841.

NBER working paper series no. w25841

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2019.

Summary:

A common objection to "sin taxes"--corrective taxes on goods that are thought to be overconsumed, such as cigarettes, alcohol, and sugary drinks--is that they often fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework and delivers empirically implementable sufficient statistics formulas for the optimal commodity tax. The optimal sin tax is increasing in the price elasticity of demand, increasing in the degree to which lower-income consumers are more biased or more elastic to the tax, decreasing in the extent to which consumption is concentrated among the poor, and decreasing in income effects, because income effects imply that commodity taxes create labor supply distortions. Contrary to common intuitions, stronger preferences for redistribution can increase the optimal sin tax, if lower-income consumers are more responsive to taxes or are more biased. As an application, we estimate the optimal nationwide tax on sugar-sweetened beverages in our model, using Nielsen Homescan data and a specially designed survey measuring nutrition knowledge and self-control. Holding federal income tax rates constant, we find an optimal federal sugar-sweetened beverage tax of 1 to 2.1 cents per ounce in our model, although optimal city-level taxes could be as much as 60% lower due to cross-border shopping.

Notes:

Print version record

May 2019.