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Estimating Tax Incidence, Market Power and Market Conduct: The European Cigarette Industry

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  • Sophia Delipalla

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  • 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. 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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File URL: ftp://ftp.ukc.ac.uk/pub/ejr/RePEc/ukc/ukcedp/9901.pdf
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Bibliographic Info

Paper provided by Department of Economics, University of Kent in its series Studies in Economics with number 9901.

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Date of creation: Jan 1999
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Publication status: Forthcoming in International Journal of Industrial Organisation
Handle: RePEc:ukc:ukcedp:9901

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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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Keywords: Tax Incidence; Commodity Taxation; Market Power; Mark-up; Conjectural Variations; Cigarettes;

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References

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Citations

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Cited by:
  1. 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.
  2. 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.
  3. 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.
  4. Robert A. Ritz, 2008. "Cost pass-through under delegation," Economics Series Working Papers 404, University of Oxford, Department of Economics.
  5. Clément Carbonnier, 2006. "Who pays commodity taxes? Evidence from French reforms, 1987-1999," Working Papers halshs-00590515, HAL.
  6. Sijbren Cnossen, 2006. "Tobacco Taxation in the European Union," CESifo Working Paper Series 1718, CESifo Group Munich.
  7. Martin Peitz & Markus Reisinger, 2009. "Indirect Taxation in Vertical Oligopoly," CESifo Working Paper Series 2583, CESifo Group Munich.
  8. 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.
  9. 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.
  10. 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.
  11. David Madden, 2002. "Setting the Appropriate Tax on Cigarettes in Ireland," Working Papers 200225, School Of Economics, University College Dublin.
  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.

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