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Horizontal And Vertical Indirect Tax Competition : Theory And Some Evidence From The Usa

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Author Info

  • Devereux, Michael

    (University of Warwick and IFS)

  • Lockwood, Ben

    (University of Warwick and CEPR)

  • Redoano, Michela

    (University of Warwick)

Abstract

This paper provides a simple theoretical framework for analyzing simultaneous vertical and horizontal competition in excise taxes, and estimates equations informed by the theory on a panel of US state and federal excise taxes on cigarettes and gasoline. We also examine the role played by smuggling. The results are generally consistent with the theory, when the characteristics of the markets for the goods are taken into account. For neither good do federal excise taxes affect state taxes. Taxes in neighboring states have a significant and large effect in the case of cigarettes, and a much weaker effect in the case of gasoline. we also find that in the setting of cigarette taxes, concerns about cross-border shopping play a more important role than concerns about smuggling.

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File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp704.pdf
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Bibliographic Info

Paper provided by University of Warwick, Department of Economics in its series The Warwick Economics Research Paper Series (TWERPS) with number 704.

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Length: 33 pages
Date of creation: 2004
Date of revision:
Handle: RePEc:wrk:warwec:704

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Keywords: tax competition ; excise taxes ; cross-border shopping ; smuggling;

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References

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  1. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 396-418, June.
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  3. Michael A. Nelson, 2002. "Using Excise Taxes to Finance State Government: Do Neighboring State Taxation Policy and Cross-Border Markets Matter?," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 42(4), pages 731-752.
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  6. Michael J. Keen & Christos Kotsogiannis, 2002. "Does Federalism Lead to Excessively High Taxes?," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 363-370, March.
  7. Esteller-More, Alex & Sole-Olle, Albert, 2001. "Vertical income tax externalities and fiscal interdependence: evidence from the US," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 31(2-3), pages 247-272, April.
  8. Masayoshi Hayashi & Robin Boadway, 2001. "An empirical analysis of intergovernmental tax interaction: the case of business income taxes in Canada," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 34(2), pages 481-503, May.
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  11. Rizzo, Leonzio, 2005. "Interaction between Vertical and Horizontal tax Competition: Theory and Evidence," MPRA Paper 5334, University Library of Munich, Germany.
  12. Michael Keen, 1997. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Working Papers 97/173, International Monetary Fund.
  13. Marie C. Thursby & Jerry G. Thursby, 1994. "Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Government Intervention," NBER Working Papers 4763, National Bureau of Economic Research, Inc.
  14. Jeffrey E. Harris & Sandra W. Chan, 1999. "The continuum-of-addiction: cigarette smoking in relation to price among Americans aged 15-29," Health Economics, John Wiley & Sons, Ltd., vol. 8(1), pages 81-86.
  15. Hoyt, William H., 2001. "Tax Policy Coordination, Vertical Externalities, and Optimal Taxation in a System of Hierarchical Governments," Journal of Urban Economics, Elsevier, vol. 50(3), pages 491-516, November.
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  17. Craig Brett & Joris Pinkse, 2000. "The determinants of municipal tax rates in British Columbia," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 33(3), pages 695-714, August.
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  21. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
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  25. repec:rus:hseeco:110836 is not listed on IDEAS
  26. Dahl, Carol & Sterner, Thomas, 1991. "Analysing gasoline demand elasticities: a survey," Energy Economics, Elsevier, Elsevier, vol. 13(3), pages 203-210, July.
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