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.
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