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Efficient Excise Taxation: The Evidence from Cigarettes

  • Benjamin, Daniel K
  • Dougan, William R

The authors develop a model in which optimizing policy makers in adjacent government jurisdictions levy excise taxes on a commodity that has a unique point of production from which all shipments emanate. From this model the authors derive an unusually specific predicted geographical pattern of those excise taxes in which these taxes rise at specific decreasing rate as one moves outward from the point of production. The authors compare these predictions to the observed pattern of cigarette taxes imposed by state governments in the United States and find the data to be fully consistent with our model. Among these predictions is the existence of a "ripple effects which reduces taxes in many other jurisdictions due to low taxes at the point of production. We estimate that these induced tax reductions in other states save cigarette producers and consumers a minimum of $110 million per year. Copyright 1997 by the University of Chicago.

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File URL: http://dx.doi.org/10.1086/467368
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Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 40 (1997)
Issue (Month): 1 (April)
Pages: 113-36

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Handle: RePEc:ucp:jlawec:v:40:y:1997:i:1:p:113-36
Contact details of provider: Web page: http://www.journals.uchicago.edu/JLE/

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  1. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-97, December.
  2. Badi H. Baltagi & Rajeev K. Goel, 1987. "Quasi-Experimental Price Elasticities of Cigarette Demand and the Bootlegging Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(4), pages 750-754.
  3. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
  4. Peltzman, Sam, 1975. "The Effects of Automobile Safety Regulation," Journal of Political Economy, University of Chicago Press, vol. 83(4), pages 677-725, August.
  5. Baumol, William J & Bradford, David F, 1970. "Optimal Departures from Marginal Cost Pricing," American Economic Review, American Economic Association, vol. 60(3), pages 265-83, June.
  6. Gary S. Becker, 1983. "A Theory of Competition Among Pressure Groups for Political Influence," The Quarterly Journal of Economics, Oxford University Press, vol. 98(3), pages 371-400.
  7. Benjamin, Daniel K & Kochin, Levis A, 1982. "A Proposition on Windfalls and Taxes When Some but Not All Resources Are Mobile," Economic Inquiry, Western Economic Association International, vol. 20(3), pages 393-404, July.
  8. Sam Peltzman, 1980. "The Growth of Government," University of Chicago - George G. Stigler Center for Study of Economy and State 1, Chicago - Center for Study of Economy and State.
  9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64, pages 416.
  10. Merriman, David, 1994. "Do Cigarette Excise Tax Rates Maximize Revenue?," Economic Inquiry, Western Economic Association International, vol. 32(3), pages 419-28, July.
  11. William Mitchell, 1989. "Chicago political economy: A public choice perspective," Public Choice, Springer, vol. 63(3), pages 283-292, December.
  12. Barnett, Paul G. & Keeler, Theodore E. & Hu, Teh-wei, 1995. "Oligopoly structure and the incidence of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 57(3), pages 457-470, July.
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