Experimental Economics Seminar for February 20

Events, Seminars | February 16, 2015

Join us for the next ICES Experimental Economics Seminar of the semester, featuring Dmitry Taubisnky.

Dr. Taubinsky, of Harvard University, will discuss his paper, Regressive Sin Taxes (abstract). The talk will take place on Friday, February 20, from 4:00 to 5:00pm, in room 5075 of the Metropolitan Building, Arlington campus.

Visit the Seminar schedule to access the paper and to learn more about upcoming speakers.

Abstract

We study corrective commodity taxation for misoptimizing consumers, in the presence of nonlinear income taxation and redistributive concerns. We extend the literature on “internality taxes” by characterizing the interaction between corrective and redistributive motives, showing that the two motives interact both multiplicatively and additively. We show that when the corrective commodity tax is regressive, redistributive concerns can make a corrective tax either larger or smaller than what it would be in the absence of redistributive motives, and that it may be optimal to ban a product even if all misoptimizing consumers would still choose to consume that product if they were rational. We derive general elasticity-based formulas for optimal taxes that are applicable to a variety of settings where corrective taxes are currently in place, and we show that the key modulator of the interaction between corrective and redistributive motives is the price elasticity of demand for the sin good. When the price elasticity of demand is low, redistributive motives mute corrective motives, leading to small or negative sin taxes. When the price elasticity is high, redistributive motives amplify corrective motives, leading to particularly high taxes. We apply our model to cigarette taxes and use numerical simulations to quantify the levels of consumer bias for which it is optimal to subsidize, tax, or ban cigarette consumption.”

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