Dynamic Preferences and the Behavioral Case Against Sin Taxes

Constitutional Political Economy (Forthcoming)

27 Pages Posted: 11 Jul 2020 Last revised: 3 Mar 2021

See all articles by Charles Delmotte

Charles Delmotte

NYU School of Law

Malte F. Dold

Pomona College - Department of Economics

Date Written: June 1, 2020


Traditionally, economists and tax theorists justify taxation by means of externalities. In recent years, both scholars and policymakers have begun advocating ‘sin taxes’ on goods whose consumption causes ‘internalities’: unaccounted-for costs that a person imposes on herself, not on others. In this paper, we argue that sin taxes rest on a static model of individual choice. They retain neoclassical rationality — with its endorsement of stable and context-independent preferences — as a normative benchmark for good, i.e., welfare-increasing choice. We contrast this model with a more dynamic understanding of choice in which preferences are context-dependent, evolving, and open to individual processes of experimentation. Such a dynamic understanding of choice is backed by recent findings in psychology and behavioral economics and is integral to the political economy of John Stuart Mill. Contributing to the most recent literature in behavioral welfare economics, we argue that the reality of dynamic and evolving preferences animates a contractarian perspective on public policy which, in turn, provides strong arguments against the sin-tax agenda and supports preference-neutral tax rules.

Keywords: Sin taxes, Behavioral Economics, Contractarianism, Dynamic Preferences, John Stuart Mill, Self-Governance

JEL Classification: D63, D91, H20, I31

Suggested Citation

Delmotte, Charles and Dold, Malte F., Dynamic Preferences and the Behavioral Case Against Sin Taxes (June 1, 2020). Constitutional Political Economy (Forthcoming), Available at SSRN: https://ssrn.com/abstract=3630617 or http://dx.doi.org/10.2139/ssrn.3630617

Charles Delmotte

NYU School of Law ( email )

Bobst Library, E-resource Acquisitions
20 Cooper Square 3rd Floor
New York, NY 10003-711
United States

Malte F. Dold (Contact Author)

Pomona College - Department of Economics ( email )

Claremont, CA 91711
United States

HOME PAGE: http://https://www.pomona.edu/directory/people/malte-dold

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