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Earmarking and the Political Support of Fat Taxes

Author

Listed:
  • Cremer, Helmuth

    (Toulouse School of Economics)

  • Goulão, Catarina

    (Toulouse School of Economics)

  • Roeder, Kerstin

    (University of Augsburg)

Abstract
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.

Suggested Citation

  • Cremer, Helmuth & Goulão, Catarina & Roeder, Kerstin, 2015. "Earmarking and the Political Support of Fat Taxes," IZA Discussion Papers 9335, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9335
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Moustapha Sarr, 2023. "Inciting Family Healthy Eating: Taxation and Nudging," EconomiX Working Papers 2023-13, University of Paris Nanterre, EconomiX.
    2. Lozachmeur, Jean-Marie & Cremer, Helmuth & Goulão, Catarina, 2019. "Soda tax incidence and design under monopoly," TSE Working Papers 19-992, Toulouse School of Economics (TSE), revised Jul 2020.
    3. Justina Klimaviciute, 2024. "(No) time to be healthy: Optimal policy with time and monetary investments in health," Health Economics, John Wiley & Sons, Ltd., vol. 33(3), pages 410-431, March.
    4. Cornelsen, Laura & Quaife, Matthew & Lagarde, Mylene & Smith, Richard D., 2020. "Framing and signalling effects of taxes on sugary drinks: a discrete choice experiment among households in Great Britain," LSE Research Online Documents on Economics 105777, London School of Economics and Political Science, LSE Library.
    5. Luis Rodrigo Arnabal, 2021. "Optimal design of sin taxes in the presence of nontaxable sin goods," Health Economics, John Wiley & Sons, Ltd., vol. 30(7), pages 1580-1599, July.
    6. Zarko Y. Kalamov & Marco Runkel, 2022. "Taxation of unhealthy food consumption and the intensive versus extensive margin of obesity," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(5), pages 1294-1320, October.
    7. Zarko Kalamov & Marco Runkel, 2020. "Taxes on unhealthy food and externalities in the parental choice of children's diet," Health Economics, John Wiley & Sons, Ltd., vol. 29(8), pages 938-944, August.
    8. Laura Cornelsen & Matthew Quaife & Mylene Lagarde & Richard D. Smith, 2020. "Framing and signalling effects of taxes on sugary drinks: A discrete choice experiment among households in Great Britain," Health Economics, John Wiley & Sons, Ltd., vol. 29(10), pages 1132-1147, October.
    9. Young, Jeffrey S., 2021. "Measuring palatability as a linear combination of nutrient levels in food items," Food Policy, Elsevier, vol. 104(C).
    10. Di Cosmo, Valeria & Tiezzi, Silvia, 2023. "Let them Eat Cake? The Net Consumer Welfare Impact of Sin Taxes," MPRA Paper 116214, University Library of Munich, Germany.
    11. Zarko Kalamov & Marco Runkel, 2018. "Paternalistic Taxation of Unhealthy Food and the Intensive versus Extensive Margin of Obesity," CESifo Working Paper Series 6911, CESifo.

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    More about this item

    Keywords

    misperception; fat tax; obesity; voting; earmarking;
    All these keywords.

    JEL classification:

    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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