The article analyzes the problem of the justification of public intervention with regard to drug consumption. It assumes, following Arrow, the impossibility of deriving a social choice in this field on pure individualistic assumptions and considers the merit good concept as a tentative to cope with this gap in the reasoning. From this starting point, the work is especially focused on the problems that arise from the regulation of the market for drugs.
We present an analytical literature review on optimal sin taxes. After identifying the distinctive features of sin goods, we develop a simple, encompassing model of the taxation of sin goods that allows for treating the main models found in the literature as subcases. We derive the optimal sin tax rates, while also considering the subsidisation of healthy goods. We then discuss the Pareto-improvement result obtained in the theoretical literature, confronting it with the debate on the regressivity of this kind of taxation. We highlight the crucial role of the interaction of tastes, self-control problems and poverty when deriving policy conclusions from theoretical models.