Working Paper: CEPR ID: DP4470
Authors: Michael P. Devereux; Ben Lockwood; Michela Redoano
Abstract: This Paper provides a simple theoretical framework for analysing simultaneous vertical and horizontal competition in excise taxes, and estimates equations informed by the theory on a panel of US state and federal excise taxes on cigarettes and gasoline. We also examine the role played by smuggling. The results are generally consistent with the theory, when the characteristics of the markets for the goods are taken into account. For neither good do federal excise taxes affect state taxes. Taxes in neighbouring states have a significant and large effect in the case of cigarettes, and a much weaker effect in the case of gasoline. We also find that in the setting of cigarette taxes, concerns about cross-border shopping play a more important role than concerns about smuggling.
Keywords: cross-border shopping; excise taxes; smuggling; tax competition
JEL Codes: H70; H71; H77
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| federal excise tax (H20) | state taxes (cigarettes) (H71) |
| neighboring state taxes (H73) | state taxes (cigarettes) (H71) |
| federal excise tax (H20) | state taxes (gasoline) (H71) |
| neighboring state taxes (H73) | state taxes (gasoline) (H71) |