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Estimating tax incidence, market power and market conduct: The European cigarette industry

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  • Delipalla, Sophia
  • O'Donnell, Owen

Abstract

Recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under-shifted onto consumers in the presence of imperfect competition. These results are used to derive a method of estimating market power and conduct. An application is made to the European cigarette industry. Previous empirical comparison of the price effects of ad valorem and specific taxes is limited. For a group of countries with broadly similar cigarette industries, there is evidence of undershifting of both taxes, with the specific tax having a significantly greater impact on price. The extremes of both perfect competition and monopoly can be rejected. Behaviour is no less competitive than the equivalent of Cournot.

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Bibliographic Info

Article provided by Elsevier in its journal International Journal of Industrial Organization.

Volume (Year): 19 (2001)
Issue (Month): 6 (May)
Pages: 885-908

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Handle: RePEc:eee:indorg:v:19:y:2001:i:6:p:885-908

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Web page: http://www.elsevier.com/locate/inca/505551

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References

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Citations

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Cited by:
  1. Martin Peitz & Markus Reisinger, 2009. "Indirect Taxation in Vertical Oligopoly," CESifo Working Paper Series 2583, CESifo Group Munich.
  2. Reny, Philip J. & Wilkie, Simon J. & Williams, Michael A., 2012. "Tax incidence under imperfect competition: Comment," International Journal of Industrial Organization, Elsevier, vol. 30(5), pages 399-402.
  3. Craig Parsons & Xavier Vanssay, 2014. "Detecting Market Competition in the Japanese Beer Industry," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 123-143, March.
  4. Mario Jametti & Agustin Redonda & Anindya Sen, 2013. "The Power to Pass on Taxes - A Test for Tax Shifting Based on Observables," CESifo Working Paper Series 4265, CESifo Group Munich.
  5. Bonnet, Céline & Réquillart, Vincent, 2011. "Tax incidence with strategic firms on the soft drink market," TSE Working Papers 11-233, Toulouse School of Economics (TSE), revised Jul 2012.
  6. Finkelstein, Eric A. & Zhen, Chen & Bilger, Marcel & Nonnemaker, James & Farooqui, Assad M. & Todd, Jessica E., 2013. "Implications of a sugar-sweetened beverage (SSB) tax when substitutions to non-beverage items are considered," Journal of Health Economics, Elsevier, vol. 32(1), pages 219-239.
  7. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes," Working Papers halshs-00872477, HAL.
  8. Donald S. Kenkel, 2005. "Are Alcohol Tax Hikes Fully Passed Through to Prices? Evidence from Alaska," American Economic Review, American Economic Association, vol. 95(2), pages 273-277, May.
  9. Liberati, Paolo & Paradiso, Massimo, 2014. "Sulla composizione dell'accisa sui tabacchi: un'ipotesi di modifica del sistema di tassazione in Italia
    [On the structure of the excise taxes on tobacco: A reform proposal for Italy]
    ," MPRA Paper 55906, University Library of Munich, Germany.
  10. Clément Carbonnier, 2011. "Shifting on prices of per unit and ad valorem consumption taxes, estimation on prices of alcoholic beverages in France," THEMA Working Papers 2011-20, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  11. Lloyd, Tim A. & McCorriston, Steve & Morgan, C. Wyn & Weldegebriel, Habtu T., 2007. "Buyer Market Power in UK Food Retailing," Working Papers 46007, Scotland's Rural College (formerly Scottish Agricultural College), Land Economy & Environment Research Group.
  12. Anna Laura Baraldi & Christian Rojas, 2011. "Cost Pass-Through with Network Externalities," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 10(3), pages 177-199, December.
  13. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2002. "A Policy Response To The E--Commerce Revolution: The Case Of Betting Taxation In The UK," Economic Journal, Royal Economic Society, vol. 112(480), pages F296-F314, June.
  14. Sijbren Cnossen, 2006. "Tobacco Taxation in the European Union," CESifo Working Paper Series 1718, CESifo Group Munich.
  15. Carbonnier, Clement, 2007. "Who pays sales taxes? Evidence from French VAT reforms, 1987-1999," Journal of Public Economics, Elsevier, vol. 91(5-6), pages 1219-1229, June.
  16. Kelly Tiller & Shiferaw Feleke & Jane Starnes, 2013. "Federal excise tax increase and its effects on U.S. tobacco production," Empirical Economics, Springer, vol. 44(2), pages 701-717, April.
  17. Lloyd, Tim A. & McCorriston, Steve & Morgan, C. Wyn & Weldegebriel, Habtu T., 2007. "Buyer Market Power in UK Food Retailing," Working Papers 46007, Scottish Agricultural College, Land Economy Research Group.
  18. Robert A. Ritz, 2008. "Cost pass-through under delegation," Economics Series Working Papers 404, University of Oxford, Department of Economics.
  19. Clément Carbonnier, 2006. "Who pays commodity taxes? Evidence from French reforms, 1987-1999," Working Papers halshs-00590515, HAL.
  20. David Madden, 2002. "Setting the Appropriate Tax on Cigarettes in Ireland," Working Papers 200225, School Of Economics, University College Dublin.
  21. Clément Carbonnier, 2013. "The Incidence of Non-Linear Consumption Taxes," THEMA Working Papers 2013-19, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.

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