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Do Taxes Produce Better Wine?

Author

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  • Martin Ljunge

    (Department of Economics, University of Copenhagen)

Abstract

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.

Suggested Citation

  • Martin Ljunge, 2011. "Do Taxes Produce Better Wine?," Discussion Papers 11-28, University of Copenhagen. Department of Economics.
  • Handle: RePEc:kud:kuiedp:1128
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    References listed on IDEAS

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    1. 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 880-887, August.
    2. Christopher Carpenter & Carlos Dobkin, 2010. "Alcohol Regulation and Crime," NBER Chapters,in: Controlling Crime: Strategies and Tradeoffs, pages 291-329 National Bureau of Economic Research, Inc.
    3. David Hummels & Alexandre Skiba, 2004. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1384-1402, December.
    4. Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.
    5. Todd M. Nesbit, 2005. "Excise Taxation and Product Quality: The Gasoline Market," Working Papers 05-11 Classification-, Department of Economics, West Virginia University.
    6. Robert C. Feenstra, 1993. "Measuring the Welfare Effect of Quality Change: Theory and Application of Japanese Autos," NBER Working Papers 4401, National Bureau of Economic Research, Inc.
    7. 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 1105-1114, October.
    8. Feenstra, R.C., 1993. "Measuring the Welfare Effects of Quality Change: Theory and Application to Japaneese Autos," Papers 93-15, California Davis - Institute of Governmental Affairs.
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    Cited by:

    1. Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.

    More about this item

    Keywords

    Quality Choice; Unit Tax; Tax Distortion;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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