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Optimal sin taxes in the presence of income taxes and health care.

Marsiliani, L. and Renstrom, T. I. and Wang, J. (2020) 'Optimal sin taxes in the presence of income taxes and health care.', Economics letters., 186 . p. 108767.


We present a unified approach to analyze sin taxes, by allowing for a non-paternalistic view, stemming from crowding-out externalities, in addition to the paternalistic view. Analytical results show the additive property between the Pigouvian and the efficiency elements in optimal sin taxes. The Pigouvian element can be decomposed into externality components additively. Although the Pigouvian elements are lower in the second-best, the second-best optimal sin taxes are not necessarily lower due to the presence of the efficiency element. Calibration results show that the implementation of sin taxes has double-dividends, which improve not only health but also economic performance and welfare.

Item Type:Article
Full text:(AM) Accepted Manuscript
Available under License - Creative Commons Attribution Non-commercial No Derivatives.
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Publisher statement:© 2019 This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Date accepted:15 October 2019
Date deposited:16 October 2019
Date of first online publication:23 October 2019
Date first made open access:23 April 2021

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