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Vertical externalities in cigarette taxation: Do tax revenues go up in smoke?

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  • Fredriksson, Per G.
  • Mamun, Khawaja A.

Abstract

In federal systems, where tax bases are joint property, the tax policy of one level of government affects the tax base of the other. This paper examines the interdependence of US federal and state cigarette tax rates. Our results suggest that states may reduce their cigarette tax rate by as much as 48 cents per dollar increase in the federal tax rate. Thus, a federal tax hike may reduce the amount of generated state tax revenues both directly (the overall tax rate rises and the state tax base declines), and indirectly (the state tax rate declines).

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 64 (2008)
Issue (Month): 1 (July)
Pages: 35-48

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Handle: RePEc:eee:juecon:v:64:y:2008:i:1:p:35-48

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Web page: http://www.elsevier.com/locate/inca/622905

Related research

Keywords: Vertical tax externalities Cigarette taxation Fiscal federalism Corruption Political economy;

References

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Citations

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Cited by:
  1. Esteller-Moré, Alejandro & Rizzo, Leonzio, 2011. "(Uncontrolled) Aggregate Shocks Or Vertical Tax Interdependence? Evidence From Gasoline And Cigarettes," National Tax Journal, National Tax Association, National Tax Association, vol. 64(2), pages 353-79, June.
  2. Ida, Tomoya & Wilhelmsson, Mats, 2014. "An Empirical Test Of The Dominant Tax Externality In Sweden," Working Paper Series, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology 14/5, Department of Real Estate and Construction Management & Centre for Banking and Finance (cefin), Royal Institute of Technology.
  3. Per G. Fredriksson & Khawaja A. Mamun, 2014. "Tobacco Politics and Electoral Accountability in the United States," Public Finance Review, , , vol. 42(1), pages 4-34, January.
  4. Esteller-Moré, Alejandro & Galmarini, Umberto & Rizzo, Leonzio, 2012. "Vertical tax competition and consumption externalities in a federation with lobbying," Journal of Public Economics, Elsevier, Elsevier, vol. 96(3), pages 295-305.
  5. Fredriksson, Per & Mamun, Khawaja, 2009. "Gubernatorial Reputation and Vertical Tax Externalities: All Smoke, No Fire?," Working Papers, Sacred Heart University, John F. Welch College of Business 2009002, Sacred Heart University, John F. Welch College of Business.

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