The Compensative Effects of Tobacco Leaf Price Changes on Tax Revenue in China
AbstractTobacco production in China is influenced by a government-set procurement price for tobacco leaf, and an excise tax on tobacco leaf revenue. This study examines the increase in the procurement price needed to keep tax revenue constant in the face of a 50% reduction in the tax rate. This “compensative effect” is important because reductions in the tax rate are contemplated and tobacco tax revenue is a major source of funding for rural communities. Based on an equilibrium-displacement model of China’s tobacco sector, results suggest the “Compensated Effect Elasticity” (CEE) is between 1.0 and 2.5. This means a 50% cut in the tax rate would necessitate an increase in the procurement price of between 50% and 125%. Sensitivity analysis indicates CEE is most sensitive to the retail demand and input substitution elasticities and least sensitive to oligopoly power and returns to scale.
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Bibliographic InfoPaper provided by Southern Agricultural Economics Association in its series 2009 Annual Meeting, January 31-February 3, 2009, Atlanta, Georgia with number 46727.
Date of creation: 2009
Date of revision:
tobacco leaf; tax rate; procuring price; compensative effects; Agricultural and Food Policy;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-02-07 (All new papers)
- NEP-CNA-2009-02-07 (China)
- NEP-PBE-2009-02-07 (Public Economics)
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