My issue is that he keeps saying 'sin taxes' are not Pigovian. I've disagreed on this point, and I disagree continually. A basic definition of a Pigovian tax is: a tax levied on a particular behavior in the market that is generating negative externalities. The idea is the tax re-aligns the real social cost with the benefits of the activity. ..
Mankiw distorts this defintion and implies that negative externalities can only occur as an action by one group negatively affects another... The externality is there - it's not external of self at that time, it's external of self OVER time. It's correcting behavior that, if a person had complete foresight and 20/20 clarity of the totality of their life, one likely would do less of. ...And this is ignoring the very real argument that many 'sins' DO have real negative external consequences at a given point in time - consequences on family and relationships that, while often non-pecuniary, cannot be ignored.I have never thought of it that way before, but hyperbolic discounting and other forms of time-inconsistent preferences may be a form of externality. Can today's self impose a burden on tomorrow's self by drinking too much beer? And does that burden constitute an externality?
I wonder if branding such behavior an 'externality' is beside the point. If imposing these sin taxes is welfare improving, does it really matter if we use the externality label?
