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Incidence and Salience of Alcohol Taxes

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  • Andrew Hanson
  • Ryan Sullivan

Abstract

We use a unique, geocoded micro data set of retail prices to estimate the incidence of alcohol taxation. We estimate the pass-through of alcohol taxation employing both standard ordinary least squares (OLS) and a regression discontinuity design (RDD), using the abrupt change in excise tax occurring at state borders for identification. Our results show that sales and excise taxes on alcohol have different effects on final consumer price. Our estimates suggest that while 40 percent to 50 percent of sales taxes are passed on to consumers, excise taxes have a negative pass-through rate. Negative rates of pass-through on the excise portion of the alcohol tax are likely the result of consumers overreacting to the tax compared to how they would react to a general price increase, or that the alcohol tax is quite salient for consumers. This effect is particularly strong in areas near state borders when using the RDD estimation strategy.

Suggested Citation

  • Andrew Hanson & Ryan Sullivan, 2016. "Incidence and Salience of Alcohol Taxes," Public Finance Review, , vol. 44(3), pages 344-369, May.
    • Handle: RePEc:sae:pubfin:v:44:y:2016:i:3:p:344-369
    DOI: 10.1177/1091142115591204
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    References listed on IDEAS

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    Cited by:

    1. Nelson, Jon Paul, 2020. "Fixed-effect versus random-effects meta-analysis in economics: A study of pass-through rates for alcohol beverage excise taxes," Economics Discussion Papers 2020-1, Kiel Institute for the World Economy (IfW Kiel).
    2. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.

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