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Efficient Excise Taxation: The Evidence from Cigarettes

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  • Benjamin, Daniel K
  • Dougan, William R
Abstract
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.

Suggested Citation

  • Benjamin, Daniel K & Dougan, William R, 1997. "Efficient Excise Taxation: The Evidence from Cigarettes," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 113-136, April.
    • Handle: RePEc:ucp:jlawec:v:40:y:1997:i:1:p:113-36
    DOI: 10.1086/467368
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    References listed on IDEAS

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    Cited by:

    1. Agrawal, David R., 2014. "LOST in America: Evidence on local sales taxes from national panel data," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 147-163.
    2. Michelle Inness & Julian Barling & Keith Rogers & Nick Turner, 2008. "De-marketing Tobacco Through Price Changes and Consumer Attempts Quit Smoking," Journal of Business Ethics, Springer, vol. 77(4), pages 405-416, February.
    3. Gary A. Hoover, 2003. "The Impact of Nonrevenue Maximizing Factors on State‐Level Cigarette Tax Rates," Contemporary Economic Policy, Western Economic Association International, vol. 21(3), pages 349-357, July.
    4. Frank A. Sloan & Justin G. Trogdon, 2004. "Litigation and the Political Clout of the Tobacco Companies: Cigarette Taxes, Prices, and the Master Settlement Agreement," School of Economics and Public Policy Working Papers 2004-04, University of Adelaide, School of Economics and Public Policy.
    5. DeCicca, Philip & Kenkel, Donald & Liu, Feng, 2013. "Excise tax avoidance: The case of state cigarette taxes," Journal of Health Economics, Elsevier, vol. 32(6), pages 1130-1141.
    6. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
    7. Mr. Montfort Mlachila & Mr. Edgardo Ruggiero & David Corvino, 2016. "Unintended Consequences: Spillovers from Nigeria’s Fuel Pricing Policies to Its Neighbor," IMF Working Papers 2016/017, International Monetary Fund.
    8. Agrawal, David R., 2016. "Local fiscal competition: An application to sales taxation with multiple federations," Journal of Urban Economics, Elsevier, vol. 91(C), pages 122-138.

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