Earmarking and the political support of fat taxes

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S Earmarking and the Political Support of Fat Taxes ABSTRACT Earmarking and the Political Support of Fat Taxes *A fat and a healthy good provide immediate gratification, and cause health costs or benefits in the long run, which are misperceived. Additionally, the fat good (healthy good) increases (decreases) health care costs by increasing (decreasing) the probability of suffering from a chronic disease in the future. Individuals differ in income and in their degree of misperceptions concerning the health effects of the consumption of fat and of healthy goods. The level of the fat tax is determined through majority voting. Individuals vote according to their misperceived utility function. Consequently, excessive fat consumption is not due to a self-control problem but due to information deficiencies or cognitive inability to process information. A fraction of the fat tax proceeds is "earmarked" to reduce health insurance premiums while the remaining fraction finances a subsidy on the healthy good. This earmarking rule is determined at a constitutional stage to maximize utilitarian or Rawlsian welfare, anticipating the induced political equilibrium. We show that the fat tax in the political equilibrium is always lower than the utilitarian fat tax. This is no longer necessarily true with a Rawlsian objective. The determination of the optimal earmarking rule is quite complex. Even in the utilitarian case, it is not just used to boost political support for the fat tax. Instead, it may involve a tradeoff between the fat tax and the healthy good subsidy.JEL Classification: I12, I18, D72

Framing and signalling effects of taxes on sugary drinks: A discrete choice experiment among households in Great Britain

“…However, our result of a larger effect from a health and earmarked tax frame would be consistent with other studies suggesting that earmarking SSB taxes could make the tax more effective at reducing the demand for SSBs. Yet the social welfare implications depend on whether the reduction in SSBs consumption translates into actual healthcare cost savings and how those as well as tax revenue are allocated (Cremer et al, 2016). We also found that the greatest response to a 20% price increase among those who did not support a tax was when the health objective and earmarking of the tax was underlined, indicating that efforts to explain the tax purpose and investing proceeds into relevant cause may increase its objectives among the most sceptical.…”

“…A recent meta-analysis estimated that public support for SSB tax increases from 42% to 66% if revenues are used for health initiatives (Eykelenboom et al, 2019). In fact, Cremer, Goulao, and Roeder (2016) demonstrate, in a theoretical framework, that earmarking a fraction of tax proceeds to reduce health insurance premiums and retaining revenues to subsidise healthier goods can be welfare maximising (Cremer et al, 2016). Another recent study provided suggestive evidence of the potential effect of framing and information on earmaking tax revenue for health from Berkeley, California, where a penny-per-ounce tax on SSBs was introduced in 2015, with its revenues to be used for nutritional or other public health programs.…”

Paternalistic Taxation of Unhealthy Food and the Intensive Versus Extensive Margin of Obesity

“…The basic argument is made by O' Donoghue andRabin (2003, 2006). Extensions can be found, for example, in Kotakorpi (2011, 2016), Cremer et al (2012Cremer et al ( , 2016. In contrast to our analysis, all these studies assume monotonically increasing instead of U-shaped health costs.…”

Soda Tax Incidence and Design Under Monopoly

“…A possible explanation for the excess consumption of unhealthy goods is that individuals misperceive the adverse health effects of these goods in the long run. Alternatively, individuals may be subject to problems of self-control in their consumption (see, among others, Gruber and Koszegi, 2004; O'Donoghue and Rabin, 2006; Kotakorpi, 2008;Haavio and Kotakorpi, 2011;Cremer et al, 2012 andCremer et al, 2016). In either case, individuals make their consumption decisions according to a "perceived" or short-run utility function, which does not fully account for the long-run harmful impact of these goods on their health.…”