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The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition: Evidence from the European Cigarette Industry

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  • Sophia Delipalla

    ()

  • Owen O'Donnell

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. Empirical comparison of the price effects of the two taxes is limited. There are no previous estimates of these effects derived from data displaying reasonable variation in both types of taxes. We fill this gap by estimating the impact on prices of specific and ad valorem taxes levied on cigarettes in Europe. The results are consistent with the theory. There is evidence of under and over-shifting and the specific tax has a significantly greater effect on price than the ad valorem.

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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9802.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9802.

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Date of creation: Feb 1998
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Handle: RePEc:ukc:ukcedp:9802

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Postal: Department of Economics, University of Kent at Canterbury, Canterbury, Kent, CT2 7NP
Phone: +44 (0)1227 764000
Fax: +44 (0)1227 827850
Web page: http://www.ukc.ac.uk/economics/

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Related research

Keywords: Commodity Taxation; Oligopoly; Cigarettes;

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References

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Cited by:
  1. Anderson, Simon P. & de Palma, Andre & Kreider, Brent, 2001. "Tax incidence in differentiated product oligopoly," Journal of Public Economics, Elsevier, vol. 81(2), pages 173-192, August.
  2. Devereux, Michael P. & Lanot, Gauthier, 2003. "Measuring tax incidence: an application to mortgage provision in the UK," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1747-1778, August.

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