Should parents tax their children for eating too much candy?

[This post originally appeared at Forbes.com on 10th July 2012]

A couple of years ago, I sat down with Chana Joffe-Walt and my then-11-year-old daughter for a long interview with the NPR podcast, Planet Money. This week Planet Money replayed the podcast and I was able to reflect on how it all turned out.

Before I get to that, here is the podcast itself.

The toilet training story was, in fact, told in my very first blog post in 2003 and there was much more to it than could be conveyed in the interview.

Now, in the podcast, the health tax accrued no revenue because it completed curbed spending on candy. Of course, we are now two years down the track with a more independent child. The issue with independence is that allows for another thing that often accompanies attempts to collect a tax: under-reporting. It did not take us too long to discover that the allowance was being used to purchase candy and my daughter owed a ton of back taxes.What was more recent was the whole notion of using an allowance combined with taxes to nudge behavior. If you haven’t a chance to listen to the podcast the story was that, while we gave our kids an allowance, we didn’t want them spending it all on candy and so imposed a steep “health tax.” The health tax was not just arbitrary but meant to be a compensation for imputed additional costs we would have to pay if they ate too much candy. To be sure, there is no calculation to actually work out those costs but it did do one important thing: it sent a signal to our children that there were costs to these actions and not all of the costs fell on them.

But this highlighted how difficult the tension between giving a child an allowance to foster independence versus providing signals as to potential adverse consequences is. The household economy will operate like the real economy. Thus, we have had to take the health issue out of our tax system and rely on more conventional forms of parenting to foster good eating habits. It also highlights that what might work — or in this case, not work — for one child can actually work for others.

Our other children don’t have the same preferences for candy and so we get some good behaviour for free. The best one can say for things like a health tax is that they put an issue on the table. They might be able to nudge behavior in a good direction but they cannot be expected to make great leaps and bounds. This is the same tension that Bloomberg will face with the ‘Big Gulp’ regulation in New York. It will be good for nudges but those who want lots of soda will get lots of soda.

So can a parent be a good manager? Sure. But can good management create perfect parenting outcomes? No.