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One Markup to Rule Them All: Taxation by Liquor Pricing Regulation

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  • Eugenio J. Miravete
  • Katja Seim
  • Jeff Thurk

Abstract

Commodity taxation often involves uniform tax rates. We use alcohol laws that tax differentiated spirits with a comprehensive uniform markup to evaluate redistribution generated by such simple tax policy. We document preference heterogeneity among consumers, variation in product demand elasticities, and market power among producers with heterogeneous product portfolios. Relative to more flexible product-level markups recognizing demand heterogeneity and strategic price responses of firms, we find that the uniform markup underprices less elastic spirits, implicitly subsidizing low-income and less educated residents. The uniform markup grants additional market power to small specialized firms whose product positioning benefits from the policy.

Suggested Citation

  • Eugenio J. Miravete & Katja Seim & Jeff Thurk, 2020. "One Markup to Rule Them All: Taxation by Liquor Pricing Regulation," American Economic Journal: Microeconomics, American Economic Association, vol. 12(1), pages 1-41, February.
  • Handle: RePEc:aea:aejmic:v:12:y:2020:i:1:p:1-41
    DOI: 10.1257/mic.20180155
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    Cited by:

    1. Eugenio J. Miravete & Katja Seim & Jeff Thurk, 2018. "Market Power and the Laffer Curve," Econometrica, Econometric Society, vol. 86(5), pages 1651-1687, September.
    2. Griffith, Rachel & O’Connell, Martin & Smith, Kate, 2019. "Tax design in the alcohol market," Journal of Public Economics, Elsevier, vol. 172(C), pages 20-35.
    3. Matthew Grennan & Robert J. Town, 2020. "Regulating Innovation with Uncertain Quality: Information, Risk, and Access in Medical Devices," American Economic Review, American Economic Association, vol. 110(1), pages 120-161, January.
    4. Hindriks, Jean & Serse, Valerio, 2019. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," Journal of Public Economics, Elsevier, vol. 176(C), pages 142-160.
    5. Simon Cowan, 2018. "Regulating monopoly price discrimination," Journal of Regulatory Economics, Springer, vol. 54(1), pages 1-13, August.

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • L43 - Industrial Organization - - Antitrust Issues and Policies - - - Legal Monopolies and Regulation or Deregulation
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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    1. One Markup to Rule Them All: Taxation by Liquor Pricing Regulation (AEJ:MI 2020) in ReplicationWiki

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