One Markup to Rule Them All: Taxation by Liquor Pricing Regulation

Eugenio Miravete Marin, Katja Seim, Jeff Thurk

Research output: Contribution to journalArticle

1 Citation (Scopus)
23 Downloads (Pure)

Abstract

Commodity taxation often involves uniform tax rates. We use alcohol laws that tax differentiated spirits with a comprehensive uniform markup to evaluate redistribution generated by such simple tax policy. We document preference heterogeneity among consumers, variation in product demand elasticities, and market power among producers with heterogeneous product portfolios. Relative to more flexible product-level markups recognizing demand heterogeneity and strategic price responses of firms, we find that the uniform markup underprices less elastic spirits, implicitly subsidizing low-income and less educated residents. The uniform markup grants additional market power to small specialized firms whose product positioning benefits from the policy.
Original languageEnglish
Pages (from-to)1-41
Number of pages41
JournalAmerican Economic Journal: Microeconomics
Volume12
Issue number1
Early online date2019
DOIs
Publication statusPublished - Feb 2020

Keywords

  • Taxation by Regulation
  • Optimal Taxation
  • Uniform Commodity Taxation
  • Market Power and the Laffer Curve

    Miravete, E. J., Seim, K. & Thurk, J., Sep 2018, In : Econometrica. 86, 5, p. 1651-1687

    Research output: Contribution to journalArticle

    Open Access
    File
    10 Citations (Scopus)
    17 Downloads (Pure)

Cite this