Working Paper: NBER ID: w12730
Authors: James R. Hines Jr.
Abstract: Throughout American history, the U.S. federal and state governments have imposed excise taxes on commodities such as alcohol and tobacco (and more recently, gasoline and firearms). Rates of such "sin" taxation, and consumption taxation broadly (including sales taxes and value-added taxes), are currently much lower in the United States than they are in Europe, Japan, and other affluent parts of the world. In part, this reflects relative government sizes, but that is not the whole story, since even controlling for total tax collections, levels of national income, government decentralization, and openness to international trade, the United States imposes unusually low excise and consumption taxes. As a result, the United States relies to a much greater degree than other countries on personal and corporate income taxes, thereby affording fewer opportunities to use the tax system to protect individuals and the environment by discouraging the consumption of "sinful" commodities, and instead simply discouraging saving and investment.
Keywords: Consumption Taxation; Excise Taxes; Value-Added Tax; Income Tax; Environmental Policy
JEL Codes: H20; H23; H71
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| low excise and consumption taxes in the U.S. (H29) | higher reliance on personal and corporate income taxes (H29) |
| higher reliance on personal and corporate income taxes (H29) | discourages saving and investment (E21) |
| higher reliance on personal and corporate income taxes (H29) | increases the tax burden on capital income (H24) |
| higher reliance on personal and corporate income taxes (H29) | reduces the efficiency of the tax system (H21) |
| reliance on income taxes (H20) | reduced future prosperity (P17) |
| absence of a value-added tax (VAT) in the U.S. (H25) | higher reliance on income taxes (H29) |
| higher reliance on income taxes (H29) | less efficient tax system (H21) |
| excise taxes could correct for externalities (H23) | improve environmental outcomes (Q56) |