Regressive Effects : Causes and Consequences of Selective Consumption Taxation

This study provides a systematic analysis of selective consumption tax policy. We detail both the motivations behind selective consumption taxes and the policy's shortcomings. Empirically, we explore how consumption of 12 goods?alcohol, cigarettes, fast food, items sold at vending machines, purchases of food away from home, cookies, cakes, chips, candy, donuts, bacon, and carbonated soft drinks?varies across the income distribution by calculating the goods' income-expenditure elasticities. Income has the greatest effect on expenditures for alcohol. A 1 percentagepoint increase in income (approximately $428 at the mean) translates into a 0.314 percentage point increase in spending on alcoholic beverages (approximately $1 annually at the mean). Income has the smallest influence on tobacco expenditures (0.007) and donut expenditures (?0.009). We conclude from this evidence that any tax on such goods is regressive