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Do Cigarette Excise Tax Rates Maximize Revenue?

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  • Merriman, David

Abstract

James Buchanan and Dwight Lee (1982) suggest that politicians choose tax rates on the positively sloped segment of the short-run rate-revenue curve but the negatively sloped segment of the long-run curve. This paper uses recent estimates of the slope of the cigarette demand curve by Gary S. Becker, Michael Grossman, and Kevin M. Murphy (1994) to test the hypothesis. Becker, Grossman, and Murphy's parameter estimates combined with state-by-state data on key variables yields strong evidence against the hypothesis and instead suggests that marginal revenues from cigarette excise taxes are positive in every state. Copyright 1994 by Oxford University Press.

Suggested Citation

  • Merriman, David, 1994. "Do Cigarette Excise Tax Rates Maximize Revenue?," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 419-428, July.
    • Handle: RePEc:oup:ecinqu:v:32:y:1994:i:3:p:419-28
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    Cited by:

    1. David M. Cutler & Jonathan Gruber & Raymond S. Hartman & Mary Beth Landrum & Joseph P. Newhouse & Meredith B. Rosenthal, 2002. "The Economic impacts of the tobacco settlement," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 21(1), pages 1-19.
    2. Jeremy Bulow & Paul Klemperer, 1998. "The Tobacco Deal," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1998 Micr), pages 323-394.
    3. Chaloupka, Frank J. & Wechsler, Henry, 1997. "Price, tobacco control policies and smoking among young adults," Journal of Health Economics, Elsevier, vol. 16(3), pages 359-373, June.
    4. Gary A. Hoover, 2003. "The Impact of Nonrevenue Maximizing Factors on State‐Level Cigarette Tax Rates," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 349-357, July.
    5. Frank J. Chaloupka & Michael Grossman, 1996. "Price, Tobacco Control Policies and Youth Smoking," NBER Working Papers 5740, National Bureau of Economic Research, Inc.
    6. Claudio Agostini, 2010. "Tributación a Los Cigarrillos: Análisis y Propuestas," ILADES-UAH Working Papers inv246, Universidad Alberto Hurtado/School of Economics and Business.
    7. Petr David, 2011. "Why and how to tax cigarettes?," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 59(4), pages 43-50.
    8. Benjamin, Daniel K & Dougan, William R, 1997. "Efficient Excise Taxation: The Evidence from Cigarettes," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 113-136, April.

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