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mdbug | 4 years ago
One problem with taxes on addictive substances is that they have little effect on consumption behavior. A higher tobacco tax makes smokers poorer, but only very few will smoke less as a result.
mdbug | 4 years ago
One problem with taxes on addictive substances is that they have little effect on consumption behavior. A higher tobacco tax makes smokers poorer, but only very few will smoke less as a result.
fighterpilot|4 years ago
Has this been studied? I get that we expect a lot of price inelasticity due to the nature of addiction, but I wonder how true that is.
One study[1] I'm reading now about a natural experiment on cigarette taxes. It worked a bit. There was an immediate decrease of 0.75% after the 25% tax was implemented, and it continued to decrease by 0.02% month-on-month afterwards (although part of that 0.75% decrease might be the existence of untaxed substitutes, and part of that 0.02% monthly decrease might be a global trend).
This[2] seems quite optimistic about taxes' ability to reduce demand. However, the data they share is not a nice natural experiment, so I don't put too much weight into it.
This one[3] is saying demand isn't inelastic at all.
This one[4] on sugar is saying a 10% price increase leads to a 13% reduction in demand.
> A higher tobacco tax makes smokers poorer
Yes, but an income tax makes workers poorer. I'd rather tax destructive behavior than productive behavior, as long as demand isn't too inelastic, given that we literally have to choose between them in order to raise sufficient revenue for the state. I admit that I should read more studies on exactly how inelastic it is before coming to a conclusion on that, though, but my cursory reading seems to support that it isn't overly inelastic.
> large amounts of saturated fats are known to be unhealthy
I wouldn't mind taxing that as well. I'm aware there's a point at which it becomes a bit too complicated, though. Start simple with sugar, alcohol and tobacco, and add other things like saturated fats based on the weight of evidence and whether it can be done simply and easily.
> In small amounts, sugar can even be healthy, e.g. after exercise.
Yeah. Similar to how alcohol might be healthy for people with heart disease. These are edge cases, and the tax will distort the market for these edge cases. But taxation is always a blunt instrument, and the broad alignment of incentives 99% of the time with a sugar tax is correct, unlike with a property tax (not a land tax) or an income tax where you get a misalignment almost all the time.
[1] https://www.thelancet.com/journals/lanpub/article/PIIS2468-2...
[2] https://www.who.int/tobacco/mpower/publications/en_tfi_mpowe...
[3] https://iris.paho.org/bitstream/handle/10665.2/31303/v40n4a0....
[4] https://bmcpublichealth.biomedcentral.com/articles/10.1186/s...