Munich Personal RePEc Archive

Let them Eat Cake? The Net Consumer Welfare Impact of Sin Taxes

Di Cosmo, Valeria and Tiezzi, Silvia (2023): Let them Eat Cake? The Net Consumer Welfare Impact of Sin Taxes.

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When judging the distributional impact of a sin tax, what matters is not just how much low income people would pay but how much the tax would benefit or harm them overall. In this paper we assess the consumer welfare impact of a fat tax net of its expected benefits computed as savings from averted internalities. Using data on Italian consumers we estimate a censored Exact Affine Stone Index (EASI) incomplete demand system for food groups and simulate changes in purchases, calorie intake, consumers’ welfare and the monetary value of health benefits after the tax. Our results suggest costs from taxation larger than benefits at all income levels. As a fraction of income, the net impact would be regressively distributed.

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