Template-Type: ReDIF-Paper 1.0
Author-Name: Arozamena Leandro
Author-Name-First: Leandro
Author-Name-Last: Arozamena
Author-Name: Ruffo Hernán
Author-Name-First: Hernán
Author-Name-Last: Ruffo
Author-Name: Sanguinetti Pablo
Author-Name-First: Pablo
Author-Name-Last: Sanguinetti
Author-Name: Weinschelbaum Federico
Author-Name-First: Federico
Author-Name-Last: Weinschelbaum
Title: Taxing for Health in Latin America
Abstract: We present a model that provides insights into the optimal structure of sin taxes, considering the varying health risks of different product variants and the presence of internalities and externalities. Then, we compare its predictions with the tax policies on tobacco, alcoholic beverages, and sugar-sweetened drinks in Latin America and the Caribbean. Our framework confirms the intuition that taxes should be levied based on the health risks these products impose on individuals. Nevertheless, we show evidence from Latin America demonstrating that sin taxes on these products are often not established in proportion to the harm they produce. Our model also suggests that consumption response to taxes is weaker when there is a higher subjective misperception of the health risk, necessitating further tax increases. A key policy issue that relates to the theoretical framework is the potential trade-off between health and revenue objectives that the government may face. Authorities may be worried that increasing these taxes for health purposes may reduce tax revenue if the demand falls to a greater extent than the taxes increase. Our model shows that the revenue argument for taxing sin products may imply higher taxes for all variants (though relatively lower for less harmful versions).
Length:  40 pages
Creation-Date:  2024-11
File-URL: https://aaep.org.ar/works/works2024/4708.pdf
File-Format: Application/pdf
Number: 4708
Classification-JEL: H2, D6
Handle: RePEc:aep:anales:4708