ABSTRACT
This study examines whether taxes on unhealthy food are suitable for internalizing intergenerational externalities inflicted by parents when they decide on their children’s diet. In an overlapping generations (OLG) model with an imperfectly altruistic parent, the optimal steady‐state tax rate on unhealthy food is strictly positive. However, it is only second‐best because, in addition to reducing unhealthy consumption by the child, it distorts the parent’s unhealthy consumption. Surprisingly, the optimal tax may underinternalize or overinternalize the marginal damage.
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