the scaling approach: only when the merit good is a very inferior one will the
policy rule (18b) prescribe taxation; the scaling approach would do so whenever
the good is price inelastic.
But even if the present approach prescribes taxation, then a rationale can be
provided: insofar the merit good considerations also apply to the inframarginal
units consumed, the government believes the agent is richer than she thinks she
is. Respecting the strong inferiority of the good, it wants the agent to consume
less of it.
The analysis has been performed for three commodities. However, its gener-
alisation to n commodities should be straightforward.
References
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Economics 35, 371-384.
Capéau B & E Ooghe (2003) Merit goods and phantom agents, Economics Bul-
letin 8(8), 1-5.
Decoster A & E Schokkaert (1989) Equity and efficiency of a reform of Belgian
indirect taxes, Recherches Économiques de Louvain 55, 155-173.
Feehan J (1990) A simple model for merit good arguments—a comment, Journal
of Public Economics 43, 127-129.
Fisher F A & K Shell (1967) Taste and quality change in the pure theory of the
true cost-of-living index, in J N Wolfe (ed) Value, Capital and Growth: Papers
in Honour of Sir John Hicks, (Edinburgh: Edinburgh UP), 97-138.
Kaplanoglou G & D Newbery (2002) Indirect taxation in Greece: evaluation and
possible reform, CES working paper 661, Munich.
Madden D (1995) Labour supply, commodity demand and marginal tax reform,
Economic Journal 105, 485-497.
Musgrave R (1959) The Theory of Public Finance (New York: McGraw-Hill).
Pazner E (1972) Merit wants and the theory of taxation, Public Finance 27,
460-472.
Sandmo A (1983) Ex post welfare economics and the theory of merit goods,
Economica 50, 19-33
Schroyen F & J Aasness (2002) Indirect marginal tax reform analysis for Norway,
mimeo, Norwegian School of Economics.
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