Dmitry Taubinsky (UC Berkeley)

"Regressive Sin Taxes, with Applications to Estimating the Optimal Soda Tax."

Apr 12, 2018
from 03:40 PM to 05:00 PM

1113 Social Science and Humanities Blue room


A common objection to “sin taxes”—corrective taxes on goods that are thought to be over-consumed, such as cigarettes, alcohol, and sugary drinks—is that they often fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. We show that the implications of regressivity hinge on why consumption decreases with income. If the consumption-income relationship is driven by income effects, then regressivity is optimally offset by targeted transfers or income tax reforms, not by moderating the level of the sin tax. If the relationship is instead driven by between-income preference heterogeneity, the optimal sin tax depends on the demand elasticity: if demand is more elastic, then progressive benefits from reduced over-consumption can make the optimal sin tax larger than if there were no distributional concerns, while if demand is less elastic, the optimal tax is reduced. As an application, we estimate the optimal nationwide tax on sugar-sweetened beverages, using Nielsen Homescan data and a specially designed survey measuring nutrition knowledge and self-control. Our empirical estimates of elasticities, preference heterogeneity, incorrect beliefs, and self-control imply that current city-level taxes in Berkeley, San Francisco, and elsewhere are actually lower than the social optimum.



Seminar is open to the public, space is limited.