Publication:
Excise Taxes, Consumer Demand, Over-Shifting, and Tax Revenue

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Authors
Dutkowsky, Donald H.
Sullivan, Ryan S.
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Date of Issue
2014
Date
Fall 2014
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Abstract
This paper examines over-shifting in excise taxes, using the constant elasticity demand function under monopolistic competition. We apply the solution for price from this model to previous studies to obtain estimated price elasticities of demand. We also derive the excise tax, which maximizes tax revenue under this formulation, resulting in a revenue-maximizing tax-price ratio based upon the price elasticity. The model is applied to some previous experience regarding excise tax increases for alcoholic beverages and cigarettes. Our study offers structural insights behind empirical research that finds over-shifting. The model can also be used to help construct excise tax policy.
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Article
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Graduate School of Business & Public Policy (GSBPP)
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Public Budgeting & Finance / Fall 2014
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This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.
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