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Sin Taxes, Insurance and the Correction of Internalities

Author

Listed:
  • Kalamov, Zarko
  • Runkel, Marco
Abstract
We analyze individuals with heterogeneous time-inconsistent preferences that consume sin goods and make a savings decision. A government may tax the sin good and provide mandatory health insurance. Due to time-inconsistency, the individual sin good and savings choices in ict internalities. Due to the ex-ante moral hazard of health insurance, sin good consumption also causes an externality. If the individuals' utility is such that savings and sin good demand decisions are decou- pled, the government can achieve the first-best outcome using a uniform tax rate and uniform health insurance. Moreover, in the optimum, the tax rate internalizes only the externality and the government provides full insurance. When the savings and sin good consumption choices are interrelated, the government can still achieve the first-best outcome by additionally using Social Security to stipulate minimum savings requirements.

Suggested Citation

  • Kalamov, Zarko & Runkel, Marco, 2019. "Sin Taxes, Insurance and the Correction of Internalities," VfS Annual Conference 2019 (Leipzig): 30 Years after the Fall of the Berlin Wall - Democracy and Market Economy 203620, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc19:203620
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    File URL: https://www.econstor.eu/bitstream/10419/203620/1/VfS-2019-pid-28107.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    sin tax; health insurance; moral hazard; hyperbolic discounting; internality;
    All these keywords.

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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