Horizontal and vertical indirect tax competition: Theory and some evidence from the USA [An article from: Journal of Public Economics]

This digital document is a journal article from Journal of Public Economics, published by Elsevier in 2007. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper provides a simple but general theoretical framework for analyzing simultaneous vertical and horizontal competition in excise taxes, which includes several previous contributions as special cases. It allows for both elastic individual demand for the taxed good, and cross-border shopping (and smuggling). It then estimates equations informed by the theory on a panel of US state and federal excise taxes on cigarettes and gasoline. The results are generally consistent with the theory, when the characteristics of the markets for the goods are taken into account. Taxes in neighboring states have a significant and large effect in the case of cigarettes. The possibility of smuggling cigarettes from low tax states also plays a role. In the case of gasoline, taxes in neighboring states do not play a significant role; however, there is evidence in this case of vertical competition.