Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198885 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7525
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We consider an unhealthy good, such as a sugar-sweetened beverage, the health damages of which are misperceived by consumers. The sugar content is endogenous. We first study the solution under “pseudo” perfect competition. In that case a simple Pigouvian tax levied per unit of output but proportional to the sugar content is sufficient to achieve a first best solution. Then we consider a monopoly. Market power affects both output and sugar content, possibly in opposite directions, and these effects have to be balanced against Pigouvian considerations. We show that, nevertheless, a tax per unit of output achieves an efficient solution, but it must be an affine function of the sugar content; taxing “grams of sugar” is no longer sufficient. Interestingly, both the total tax as well as its sugar component can be positive as well as negative.
Subjects: 
sin tax
tax incidence
misperception
monopoly
JEL: 
H22
I12
D42
Document Type: 
Working Paper
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