Horizontal and vertical indirect tax competition: theory and some evidence from the USA

Devereux, Michael, Lockwood, Ben and Redoano, Michela (2007) Horizontal and vertical indirect tax competition: theory and some evidence from the USA. Journal of Public Economics, 91 (3-4). pp. 451-479.

Abstract

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.

Item Type: Article
Keywords: tax competitions, excise taxes, cross-border shopping, smuggling
Subject(s): Taxation
Centre: Oxford University Centre for Business Taxation
Date Deposited: 01 Dec 2011 11:25
Last Modified: 02 Oct 2018 12:55
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1276

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