Job Market Paper

Sin Taxes and Self Control with Sinne Smed,

Job Market Paper (PDF)

Abstract "Sin taxes" can be welfare improving if they help people with low self-control reduce their consumption of unhealthy goods. A number of theoretical papers show that this requires consumers with low self-control to respond at least as strongly to a tax as people with high self-control. In this paper, we investigate this relationship in the context of two sets of sin tax reforms in Denmark: first, the increase of the soft drink tax in 2012 and its repeal in 2014, and, second, the fat tax introduction in 2011 and its repeal in 2013. We assess the consumption response empirically using the GfK Consumerscan household panel. With this data, we can separate the sample in consumers with low and high levels of self-control using a survey measure. We find that consumers with low self-control reduce consumption less strongly than consumers with high self-control when taxes go up, but increase consumption to a similar extent when taxes go down. Hence, we document an asymmetry in the responsiveness to increasing and decreasing prices. We show theoretically that these observations are consistent with a model of self-control and rational habit formation. The results suggest that price instruments may not be an effective tool for targeting self-control problems.
Presentations 2019
Risky Health Behaviors Workshop, Hamburg
CEBI at University of Copenhagen
FAIR at NHH, Bergen
European Economic Association - Annual Congress, Manchester
International Institute of Public Finance (IIPF) - Annual Congress, Glasgow
Institute for Fiscal Studies (IFS), London
Applied Micro Workshop, Hertie School of Governance, Berlin
Retreat of the CRC TRR 190 "Rationality and Competition", Schwanenwerder
Food and Health Economics Workshop, Toulouse
DIW GC Summer Workshop, Potsdam
DIW Cluster Seminar, Berlin
Behavioral Welfare Economics Workshop, Berlin
IFRO Behavioral Economics Seminar, Copenhagen


Published Papers

Social Image Concerns and Welfare Take-Up with Jana Friedrichsen and Tobias König,
Journal of Public Economics, 168, 2018, pp. 174-192. (Link)

Abstract Using a laboratory experiment, we present first evidence that social image concerns causally reduce the take-up of an individually benecial transfer. Our design manipulates the informativeness of the take-up decision by varying whether transfer eligibility is based on ability or luck, and how the transfer is financed. We find that subjects avoid the inference both of being low-skilled (ability stigma) and of being willing to live off others (free-rider stigma). Using a placebo treatment, we exclude other explanations for the observed stigma effects. Although stigma reduces take-up, elicitation of political preferences reveals that only a minority of “taxpayers” vote for the public transfer.
Presentations 2017
Nordic Conference on Behavioral and Experimental Economics, Gothenburg*
VfS Annual Congress, Vienna*
Lindau Meeting Of The Laureates Of The Sveriges Riksbank, Lindau*
European Economic Association - Annual Congress, Lisbon
Maastricht Behavioral and Experimental Economics Symposium, Maastricht*
ZEW Public Finance Conference, Mannheim*
International Meeting on Experimental and Behavioral Social Sciences (IMEBESS), Barcelona
"Arne Ryde Workshop on Identity, Image and Economic Behavior, Image", Lund*
Economic Science Association - European Meeting, Bergen
Micro Reading Group, Berlin
(* presented by coauthor)

Working Papers

Do prices and purchases respond symmetrically to soft drink tax increases and cuts? Evidence from Danish tax reforms with Sinne Smed,
R&R at Economics and Human Biology

Abstract While in January 2012, Denmark increased the long-standing tax on sugary soft drinks, the tax was cut by half in July 2013 and then completely repealed in January 2014. In this study, we examine whether increases and cuts of the soft drink tax lead to symmetric over- or under-shifting to prices and to symmetric demand responses. We use longitudinal scanner data of 1,282 Danish households to estimate within-product changes in prices and within-household changes in purchase quantity. The tax hike was overshifted by a factor of 2.2 while the tax repeal was passed through with a factor of 1.2. On average, consumption was 13.4 percent lower the year after the tax increase compared to the year before. The repeal of the tax was associated with an increase in purchase quantity of 31.0 percent. This is equivalent to price elasticities of 1.1 and 1.3 respectively. The results suggest that consumers react stronger to tax cuts than to tax increases. Furthermore, the increase in consumption following a tax cut has no limiting effect on the consumption of other beverages suggesting an increase in the intake of calories. This might have implications for health in countries that consider repealing current taxes on soft drinks.

Earn More Tomorrow: Overconfident Income Expectations and Consumer Indebtedness with Antonia Grohmann, Lukas Menkhoff and Christoph Merkle,
CRC TRR 190 Discussion Paper No. 152. (PDF)

Abstract This paper examines whether biased income expectations due to overconfidence lead to higher levels of debt-taking. In a lab experiment, participants can purchase goods by borrowing against their future income. We exogenously manipulate income expectations by letting income depend on relative performance in hard and easy quiz tasks. We successfully generate biased income expectations and show that participants with higher income expectations initially borrow more. Overconfident participants scale back their consumption after feedback. However, at the end of the experiment they remain with higher debt levels, which represent real financial losses. To assess the external validity, we find further evidence for the link between overcondence and borrowing behavior in a representative survey (GSOEP-IS).

Work in Progress

Soft Drink Taxation and Demand Persistence

Presentations 2017
(CE)² Workshop, Warsaw
DIW GC Summer Workshop, Potsdam

Protecting the Ego: Information Selection and Updating with Alessandro Castagnetti

Presentations 2019
Nordic Conference on Behavioral and Experimental Economics, Kiel*
Economic Science Association - European Meeting, Dijon*
Dr@w Forum, Warwick University*
Warwick PhD Conference*
DIW Micro Reading Group, Berlin
(* presented by coauthor)

Matching and Voting. What Drives Preferences for Matching Mechanism? with Tobias König, Dorothea Kübler and Lydia Mechtenberg

Policy Work

Fear of Stigmatization Prevents Individuals from Claiming Benefits (with Jana Friedrichsen), DIW Weekly Report 26-27/2019, June 2019. (Link, In German: Link)

Softdrinksteuer: Proportionale Steuer ist der vielversprechendste Ansatz, DIW Aktuell 10, May 2018. (Link)

Eine Softdrinksteuer zur fiskalischen Konsumsteuerung, DIW Roundup 103, November 2016. (Link)