Education, taxation and the perceived effects of sin good consumption

In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education and taxation. When only optimistic consumers are...

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Bibliographic Details
Published in:International tax and public finance 2022-08, Vol.29 (4), p.985-1013
Main Authors: Immordino, Giovanni, Menichini, Anna Maria C., Romano, Maria Grazia
Format: Article
Language:English
Subjects:
Bias
Business Taxation/Tax Law
Consumer behavior
Consumers
Consumption
Economics
Economics and Finance
Elasticity of demand
International taxation
Mental health
Optimism
Perceptions
Public Finance
Taxation
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Summary:In a setting in which an agent has a behavioral bias that causes an underestimation or an overestimation of the health consequences of sin goods consumption, the paper studies how a social planner can affect the demand of such goods through education and taxation. When only optimistic consumers are present, depending on the elasticity of demand of the sin good with respect to taxation, the two instruments can be substitutes or complements. When consumers are heterogeneous, the correcting effect that taxation has on optimistic consumers has unintended distorting effects on both pessimistic and rational ones. In this framework, educational measures, by aligning biased consumers’ perceptions closer to the true probability of health damages, are more effective than taxation.
ISSN:0927-5940
1573-6970
DOI:10.1007/s10797-021-09701-1