27.4.17

SIN TAXES DO NOT CHANGE BEHAVIOR.

Taxes on Unhealthy Food Are Ineffective and Hurt the Poor.  Yes, if your criteria for "effective" include "reducing the consumption of junk food" and "making the rich pay most of the taxes."  But you have to think carefully about the ability of people to avoid the tax.
It’s certainly intuitive that taxing sugary soda and bad-cholesterol-ridden potato chips will prompt consumers to buy fewer of those items—and that people will substitute healthier alternatives. But it turns out that consumers’ buying habits do not change markedly in response to the higher prices, and that the burden of those taxes falls most heavily on the low-income, who allocate larger shares of their budgets to food than wealthier people do.
Not to mention, to the extent people can avoid local sin taxes (hello, Chicago; hello, Philadelphia) by shopping across jurisdictions, the sin taxes may not bring in the expected revenue either.

Final examination season approaches.  Please note an entry that should be in your workbook.
Raising significant tax revenue suggests a relatively inelastic demand. Ramsey-optimality means raising that revenue with the least excess burden (deadweight loss, for the traditionalist.)
Then, dear reader, change your criteria to "raise revenue with relatively little excess burden" and you have your case for sin taxes.

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