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Do Taxes Produce Better Wine?

  • Martin Ljunge

    (Department of Economics, University of Copenhagen)

Theory predicts that unit taxes increase the quality consumed in a market since unit taxes reduce the relative price of high quality goods. Ad valorem taxes, on the other hand, have no effect on relative prices and should not affect product quality. The hypothesis is tested empirically in the US wine market. I find that the market share of high quality wine is significantly increased by unit taxes and that there is no significant effect of ad valorem taxes, in accordance with the hypothesis and previous empirical studies.

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File URL: http://www.econ.ku.dk/english/research/publications/wp/dp_2011/1128.pdf
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Paper provided by University of Copenhagen. Department of Economics in its series Discussion Papers with number 11-28.

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Length: 20 pages
Date of creation: 14 Oct 2011
Date of revision:
Handle: RePEc:kud:kuiedp:1128
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  1. Todd M. Nesbit, 2005. "Excise Taxation and Product Quality: The Gasoline Market," Working Papers 05-11 Classification-, Department of Economics, West Virginia University.
  2. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-87, August.
  3. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
  4. Falvey, Rodney E, 1979. "The Composition of Trade within Import-restricted Product Categories," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1105-14, October.
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