Rational addiction, lagged demands and the efficiency of excise taxes: Revisions of standard theory

Concluding comments

The interdependence of consumption over time unsettles many firmly held conclusions that concern the impact of government policies. Becker and Murphy's (1988) analysis of the complimentarity of consumption of a given good over time suggests that people will not always adjust marginally to changes in the parameters of consumption, one of which is surely the presence, absence, or prospects of excise taxation. Lee and Kreutzer's (1982) analysis of the lagged demand curve indicates that any threat to the stability of future property rights — through the imposition of excise taxes or anything else — can have what would be considered, viewed from the accepted paradigm, perverse consumption behavior. Excise taxes in many essential regards represent threats to current and future property rights. As a consequence, for goods whose consumption is interdependent over time, or addictive, excise taxes can retard consumption in both current and future time periods by more than might be thought from the perspective of the standard analytical models. Such a conclusion undermines conventional wisdom, which holds that excise taxes are often designed and applied to products with inelastic demands simply to minimize economic distortions.