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The B.E. Journal of Economic Analysis & Policy

Editor-in-Chief: Ludwig, Sandra / Schmitz, Hendrik

Ed. by Barigozzi, Francesca / Brunner, Johann / Fleck, Robert / Jürges, Hendrik / Mastrobuoni, Giovanni / Mendola, Mariapia / Requate, Till / de Vries, Frans / Wenzel, Tobias

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Volume 13, Issue 2


Volume 6 (2006)

Volume 4 (2004)

Volume 2 (2002)

Volume 1 (2001)

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

Clément Carbonnier
  • Corresponding author
  • University of Cergy-Pontoise – THEMA, 33 bd du port, Cergy-Pontoise 95000, France; Sciences-Po, LIEPP, 27 rue des Saints-Pères, Paris 75007, France
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Published Online: 2013-09-12 | DOI: https://doi.org/10.1515/bejeap-2013-0047


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.

Keywords: tax incidence; VAT; excise taxes; alcoholic beverages; imperfect competition


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About the article

Published Online: 2013-09-12

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

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

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.

Indice des prix à la consommation: consumption price index.

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

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.

Citation Information: The B.E. Journal of Economic Analysis & Policy, Volume 13, Issue 2, Pages 837–863, ISSN (Online) 1935-1682, ISSN (Print) 2194-6108, DOI: https://doi.org/10.1515/bejeap-2013-0047.

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