Dubois, Pierre, Abi Rafeh, Rossi, Griffith, Rachel and O'Connell, Martin (2023) The Effects of Sin Taxes and Advertising Restrictions in a Dynamic Equilibrium. TSE Working Paper, n. 23-1480, Toulouse

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Abstract

We develop a dynamic equilibrium model of rm competition to study the impact of counterfactual policies, such as taxes and advertising restrictions, on pricing, advertising, consumption and welfare. ;We estimate the model using micro level data on the market for colas. We use consumer level exposure to television commercials to estimate the impact of advertising on product choice, model rms' dynamic competition through their choice of advertising budgets and product prices, and exploit rms' practice of delegating decisions over advertising slots to agencies to link the rich consumer-level advertising variation with rms' strategic choice variables. We show that a sugar- sweetened beverage tax leads to a reduction in advertising and that the incremental eects of implementing advertising restrictions are substantially reduced with a tax in place.