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.
Type
Article
Description
Series/Report No
Department
Graduate School of Business & Public Policy (GSBPP)
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Citation
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.