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Wine Taxes, Production, Aging and Quality

Author

Listed:
  • Rachael E. Goodhue
  • Jeffrey LaFrance
  • Leo K. Simon

    (School of Economic Sciences, Washington State University)

Abstract

We consider the impact of taxes on the quantity and quality produced of goods, such as wine, for which market value accrues with age by a competitive producer. Any pair of taxes that includes a volumetric sales tax and any one of three other types of tax – an ad valorem sales tax, an ad valorem storage tax, or a volumetric storage tax – spans the full range of feasible tax revenues with positive tax rates. For any tax system that reduces quality relative to the firm’s no-tax equilibrium, there is another tax system that increases tax revenues, eliminates the quality distortion, and does not increase the quantity distortion. Many wine industry observers believe that most, if not all, existing tax systems tend to result in the suboptimal provision of quality. Our results suggest that the wide variety of wine tax systems is not prima facie evidence that these systems, or most of them, are inefficient. Provided the system includes a volumetric sales tax it may be efficient, regardless of which of the other instruments, or how many of them, are used. Assertions regarding inefficiency must be evaluated on an empirical case-by-case basis. Our analysis provides a theoretical framework for such research.

Suggested Citation

  • Rachael E. Goodhue & Jeffrey LaFrance & Leo K. Simon, 2009. "Wine Taxes, Production, Aging and Quality," Working Papers 2009-04, School of Economic Sciences, Washington State University.
    • Handle: RePEc:wsu:wpaper:lafrance-6
    as

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    File URL: http://faculty.ses.wsu.edu/WorkingPapers/LaFrance/WP2009-04-GLS-wine-taxes.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Limor Dina Gonen & Tchai Tavor & Uriel Spiegel, 2021. "The Positive Effect of Aging in the Case of Wine," Mathematics, MDPI, vol. 9(9), pages 1-16, April.

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    More about this item

    Keywords

    aging; Alchian-Allen effect; tax policy; wine;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture

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