Answering Your Economics-of-Prostitution Questions

Concerning a "sex tax" for prostitutes in Germany, Bruce asks:

Does the imposition of a monthly levy, rather than a surcharge to the value added tax, distort the market for prostitution in inefficient ways? Does it discourage the marginal producer, allowing the more famous madams in the spirit of Lulu White to reap the benefit of reduced competition and charge oligopolistic rent? What about non-compliance and evasion; is the infamously picky German customer equally picky about paperwork in this area, and will heavy-handed German bureaucrats inflict their obsessive-compulsive Kantian ethic of the categorical imperative to prosecute the non-compliant? How would Borat's sister - the 4th most famous prostitute in Kazakhstan - adjust to these market conditions?

I'm not that familiar with VATs, which are more common in Europe than the U.S., but this "sex tax" appears to be a kind of professional license fee, which is found in lots of jobs, from lawyer to hot dog stand vendor. A license to whore, if you will. It's true that licenses, and license fees, can be a barrier to entry into a given market; Milton Friedman, for one, argued that the American Medical Association uses licensure to deliberately restrict the supply of doctors (which has a fair amount of truth to it). On the other hand, you do want your doctor or lawyer to be well-qualified, just as you want the guy who sells hot dogs to do so in a sanitary fashion, and (I imagine) you want your hooker to know what she's doing. How you would determine such a thing, I have no idea.

This blog post has been brought to you by economics: making the taboo banal since 1776.

UPDATE: For a more sober perspective on legalized prostitution, this CSM article is informative.