Sin Taxes and Self-Control: Job Market Paper

Research output: Working paperResearch

Theoretical studies show that \sin taxes" are welfare improving if consumers with low self-control are at least as price responsive as consumers with high self-control, even in the absence of externalities. In this paper, we investigate if consumers with low and high self-control react dierently to sin tax variation. For identication, we exploit two sets of sin tax reforms in Denmark: rst, the increase of the soft drink tax in 2012 and its repeal in 2014, and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the consumption response empirically using a detailed homescan household panel. Our unique dataset comprises a survey measure of self-control linked to the panelists, which we use to separate the sample in consumers with low and high levels of self-control. We nd that consumers with low self-control reduce consumption less strongly than consumers with high self-control when taxes go up, but increase consumption to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We show theoretically that these observations are consistent with a model of self-control and rational habit formation. The results suggest that price instruments are not an eective tool for targeting self-control problems.
Original languageEnglish
Number of pages54
Publication statusPublished - 2019

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