Excise Taxation and Product Quality: The Gasoline Market
Following Barzel (1976), product quality increases in response to unit taxation but remains unchanged by ad valorem taxation.? While many tax theorists agree this argument is theoretically sound, empirical support of Barzel's theory is limited to the cigarette market.? This paper tests and confirms his theory in the gasoline market, a market in which Barzel failed to find supporting evidence in his original article.? Using a direct test and improved data, the estimates suggest that the market share of premium-grade gasoline increases in response to both unit taxation and ad valorem taxation.
Volume (Year): 12 (2007)
Issue (Month): 2 (September)
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- Sumner, Michael T & Ward, Robert, 1981. "Tax Changes and Cigarette Prices [An Alternative Approach to the Analysis of Taxation]," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1261-1265, December.
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- Archibald, Robert & Gillingham, Robert, 1980. "An Analysis of the Short-Run Consumer Demand for Gasoline Using Household Survey Data," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 622-628, November.
- Leffler, Keith B, 1982. "Ambiguous Changes in Product Quality," American Economic Review, American Economic Association, vol. 72(5), pages 956-967, December.
- Johnson, Terry R, 1978. "Additional Evidence on the Effects of Alternative Taxes on Cigarette Prices," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 325-328, April.
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