American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
The Effects of Sin Taxes and Advertising Restrictions in a Dynamic Equilibrium
American Economic Journal: Microeconomics
(pp. 39–76)
Abstract
We develop a dynamic equilibrium model of firm competition to analyze the effects of counterfactual policies, such as taxes and advertising restrictions, on pricing, advertising, consumption, and welfare. Using micro-level data, we estimate how consumer exposure to television commercials influences product choice and model firms' strategic competition over advertising budgets and pricing. We exploit firms' practice of delegating advertising slot decisions to agencies to link consumer-level advertising variation to firms' strategic choices. Our results show that a sugar-sweetened beverage tax reduces advertising, while the additional impact of advertising restrictions is significantly weaker when a tax is already in place.Citation
Abi-Rafeh, Rossi, Pierre Dubois, Rachel Griffith, and Martin O'Connell. 2026. "The Effects of Sin Taxes and Advertising Restrictions in a Dynamic Equilibrium." American Economic Journal: Microeconomics 18 (3): 39–76. DOI: 10.1257/mic.20240380Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- D22 Firm Behavior: Empirical Analysis
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L13 Oligopoly and Other Imperfect Markets
- L66 Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
- L82 Entertainment; Media
- M37 Advertising