Premium
Taxing Sin Goods and Subsidizing Health Care *
Author(s) -
Cremer Helmuth,
De Donder Philippe,
Maldonado Darío,
Pestieau Pierre
Publication year - 2012
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2011.01666.x
Subject(s) - mistake , consumption (sociology) , subsidy , economics , damages , health care , production (economics) , public economics , health economics , microeconomics , economic growth , law , market economy , political science , sociology , social science
We study the taxation of sin goods in a two‐period, three‐good model. Individuals can buy health care to compensate for the damages caused by their earlier sin‐good consumption. Individuals are myopic and underestimate the effect of the sinful consumption on health; in their second period, they may acknowledge their mistake or persist in their error. We characterize and compare the first‐best and the (linear) second‐best taxes in these different settings. In particular, we examine how the results are affected by the way sin‐good consumption and health care interact in health production technology.