This paper develops a general equilibrium model of commodity taxation under monopolistic competition with free entry. Extending the Dixit–Stiglitz framework, we allow the government to use both ad valorem and specific taxes and to rebate tax revenue in a lump-sum manner. We show that ad valorem taxation alone can implement the first-best allocation by correcting both markup and entry distortions, rendering specific taxes redundant. The optimal ad valorem tax schedule reverses the Ramsey rule: industries with higher substitution elasticities face higher tax rates. This reversal arises because taxation affects firms’ entry incentives in addition to consumption choices. When ad valorem taxes are constrained, specific taxes serve only as second-best instruments and equilibrium entry becomes excessive in every industry. The results highlight that instrument choice is central to optimal taxation in imperfectly competitive economies.

This paper develops a general equilibrium framework to quantify optimal circular-economy policies in the presence of heterogeneous materials. The model tracks material flows from virgin extraction through production, consumption, waste generation, recycling, and landfill disposal. Materials differ in recyclability, extraction costs, and environmental damages, generating material-specific externalities not internalized in market outcomes. We characterize three policy instruments: a consumption tax that internalizes waste externalities, material-specific taxes on virgin extraction reflecting scarcity and environmental damages, and recycling subsidies reflecting heterogeneity in recovery technologies and landfill impacts. The optimal consumption tax takes a deposit-refund form, taxing material-intensive consumption while refunding the productive value of recycled inputs. Calibrated to the United States, the model reveals substantial heterogeneity in optimal policies across materials. The results highlight a disconnect between current policies -uniform sales taxes, limited deposit-refund systems, and weak extraction taxes - and efficiency benchmarks.

This paper studies when are sin taxes effective in affecting consumption. We organize the paper through a theory framework that characterizes how substitution preferences relate to elasticity of consumption: otherwise it is very small, but when two goods are very close substitutes the elasticity explodes to a large level. We also present a theory framework to analyze welfare in the presence of externalities. Empirically we analyze a Finnish sin tax scheme with quasi-experimental variation through multiple reforms. Our register data contains hundreds of millions of observations. We also provide survey evidence on substitution preferences across categories of goods. Our estimated consumption elasticities align very well with the theory framework, such that consumption elasticity is close to unity only for sugary soda for which the closest substitute is sugar-free soda. We also provide a meta-analysis to literature analyzing consumption elasticities and show that the elasticity estimates align with our theory framework.

This paper examines a controversial policy—fines that scale with income—and seeks to rationalize it using both canonical economic motives (externality mitigation and redistribution) and novel fairness considerations ("proportional punishment" and "equal compliance") alluded to in statutory justifications for the policy. We focus on speeding offenses in Finland, where a violation that would cost a low-income driver $250 can cost over $100,000 for the rich. Using linked Finnish administrative data and several research designs, we show that the Finnish system cannot be rationalized by externality- or redistribution-based motives. Using an original survey, we find that Finns' valuations of income-based fine policies are insensitive to both the steepness of the fine schedule and the distribution of behavior induced by fines, evidence that is inconsistent with the two hypothesized fairness rationales. We conclude that income-based fines cannot be justified using leading economic or fairness-based rationales for their existence.