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American Economic Journal: Economic Policy: Vol. 4 No. 4 (November 2012)

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The Heterogeneous Geographic and Socioeconomic Incidence of Cigarette Taxes: Evidence from Nielsen Homescan Data

Article Citation

Harding, Matthew, Ephraim Leibtag, and Michael F. Lovenheim. 2012. "The Heterogeneous Geographic and Socioeconomic Incidence of Cigarette Taxes: Evidence from Nielsen Homescan Data." American Economic Journal: Economic Policy, 4(4): 169-98.

DOI: 10.1257/pol.4.4.169

Abstract

We use Nielsen Homescan data to examine who bears the economic burden of cigarette taxes. We find cigarette taxes are less than fully passed through to consumer prices, suggesting consumers and producers split the excess burden of these taxes. Using information on consumer location, we show the availability of lower-tax goods across state borders creates significant differences in the pass-through rate. Tax avoidance opportunities also have a sizable effect on purchasing behavior by altering consumer search, prices paid and quantities purchased. Finally, we demonstrate that the incidence of cigarette taxes and the border effect varies by household income and education. (JEL D12, H22, H25, H26, H71, L66)

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Authors

Harding, Matthew (Stanford U)
Leibtag, Ephraim (USDA)
Lovenheim, Michael F. (Cornell U)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
H22: Taxation and Subsidies: Incidence
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H26: Tax Evasion
H71: State and Local Taxation, Subsidies, and Revenue
L66: Food; Beverages; Cosmetics; Tobacco; Wine and Spirits

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