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The Uneasy Case Against Discriminatory Excise Taxation: Soft Drink Taxes in Ireland

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  • Roy Bahl
  • Richard Bird
  • Mary Beth Walker

Abstract

This study uses an empirical case study to investigate the revenue implications of reducing a discriminatory excise tax. The case study is Ireland, which provides a natural experiment because it has both imposed and removed such a discriminatory tax (on soft drinks) in the past two decades. The authors find that soft drink consumption is price elastic, income elastic, and sensitive to weather. They estimate that 30% of the amount of surrendered excise tax revenue is recaptured by the value-added tax and income tax. The remaining 70% loss is further reduced by a small reduction in welfare costs, elimination of administration costs, and reduced compliance costs. The rate-revenue curve has a negative slope, even though demand is price elastic, presumably because marginal costs are rising and the tax reduction is not fully captured in the price reduction. In effect, the authors find undershifting and no evidence of a Laffer effect.

Suggested Citation

  • Roy Bahl & Richard Bird & Mary Beth Walker, 2003. "The Uneasy Case Against Discriminatory Excise Taxation: Soft Drink Taxes in Ireland," Public Finance Review, , vol. 31(5), pages 510-533, September.
  • Handle: RePEc:sae:pubfin:v:31:y:2003:i:5:p:510-533
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    Cited by:

    1. Joan Gil & Guillem López Casasnovas & Toni Mora, 2013. "Taxation of unhealthy consumption of food and drinks: An updated literature review," Hacienda Pública Española, IEF, vol. 207(4), pages 119-140, December.
    2. Richard M. Bird & Sally Wallace, 2010. "Taxing Alcohol In Africa: Reflections And Updates," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1031, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    3. Alberto Gago & Xavier Labandeira & Xiral López Otero, 2014. "A Panorama on Energy Taxes and Green Tax Reforms," Hacienda Pública Española, IEF, vol. 208(1), pages 145-190, March.
    4. Roy Bahl, 2011. "Taxing Soft Drinks," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1106, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    5. Jou, Judy & Techakehakij, Win, 2012. "International application of sugar-sweetened beverage (SSB) taxation in obesity reduction: Factors that may influence policy effectiveness in country-specific contexts," Health Policy, Elsevier, vol. 107(1), pages 83-90.
    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. Jason M. Fletcher & David Frisvold & Nathan Tefft, 2010. "Can Soft Drink Taxes Reduce Population Weight?," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 23-35, January.

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