One Markup to Rule Them All: Taxation by Liquor Pricing Regulation
American Economic Journal: Microeconomics
vol. 12,
no. 1, February 2020
(pp. 1-41)
(Complimentary)
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.Citation
Miravete, Eugenio J., Katja Seim, and Jeff Thurk. 2020. "One Markup to Rule Them All: Taxation by Liquor Pricing Regulation." American Economic Journal: Microeconomics, 12 (1): 1-41. DOI: 10.1257/mic.20180155Additional Materials
JEL Classification
- D12 Consumer Economics: Empirical Analysis
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H25 Business Taxes and Subsidies including sales and value-added (VAT)
- L43 Legal Monopolies and Regulation or Deregulation
- L66 Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
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