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Pass-through of Per Unit and ad Valorem Consumption Taxes: Evidence from Alcoholic Beverages in France

  • Clément Carbonnier EMAIL logo


Economic theory states that in a market with imperfect competition, per unit consumption taxes should induce a greater increase in prices than ad valorem consumption taxes. This implies that consumers bear a greater share of the tax burden with per unit consumption taxes than that with ad valorem consumption taxes. This article seeks to test this theoretical result empirically using the French market for alcoholic beverages, which is subject to both per unit (excise taxes) and ad valorem (value-added tax, VAT) consumption taxes. Econometric analysis is applied to two consumption tax reforms affecting two distinct French markets for alcoholic beverages, those for beer and for aperitif. In 1995, the full rate of VAT increased from 18.6 to 20.6%; excise taxes on alcoholic beverages increased in 1997. Graphical evidence and econometric results confirm the statements of economic theory. For both classes of alcoholic beverages – beer and aperitif – the change in prices due to per unit excise taxes was significantly larger than that due to ad valorem VAT.


This work is part of the research program ITACE on indirect taxation, conducted with Pascal Belan and Martine Carré-Tallon and funded by the French Agence Nationale pour la Recherche (ANR). In addition, I am grateful to the Editor and referees, the participants of THEMA seminar and those of LAGV and PET conferences for their comments that allowed me to improve this article. I want to thank Michel Pierssens, Amanda Skoda and Keith Tribe for their helpful rereading. Every remaining error is mine.


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  1. 1

    2005 is the year for the observations used by Bonnet and Réquillart (2011); soft-drink excise has been introduced in 2012 in France.

  2. 2

    In France, the excise payments are not deductible from the VAT base: after payment of and t, the producer keeps .

  3. 3

    These parameters correspond to those of Delipalla and O’Donnell (2001), with a difference in the specification of the ad valorem tax. As Delipalla and Keen (1992), they considered where the ad valorem tax rate v is applied to the selling price p. To reproduce European VAT (the ad valorem tax in the data), I consider the ad valorem tax applied to the selling price without VAT . Their v equals to . Besley and Rosen (1999) did not formalize the changing incidence of taxation, since their goal was to test full-shifting against over-shifting and under-shifting. Therefore, they only considered the pre-tax price and estimated whether it increases or decreases with respect to tax changes.

  4. 4

    Indice des prix à la consommation: consumption price index.

  5. 5

    All prices are converted to euro, because the time series of the mean prices built by INSEE are fully converted to euros.

  6. 6

    Different lags are used, from 0 (equivalent to the White method for estimating standard errors) to 4. Results are very close the ones to the others using different lags; I present the results with lag equal to 1, the most appropriate to correct autocorrelation of the residuals at first order.

Published Online: 2013-09-12

©2013 by Walter de Gruyter Berlin / Boston

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