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Journal of Agricultural & Food Industrial Organization

Ed. by Azzam, Azzeddine

2 Issues per year


SCImago Journal Rank (SJR) 2015: 0.189
Source Normalized Impact per Paper (SNIP) 2015: 0.549
Impact per Publication (IPP) 2015: 0.500

Online
ISSN
1542-0485
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Tax Incidence When Quality Matters: Evidence from the Beer Market

Christian Rojas
  • University of Massachusetts Amherst University of British Columbia
/ Tianji Shi
  • University of Massachusetts Amherst University of British Columbia
Published Online: 2011-12-02 | DOI: https://doi.org/10.2202/1542-0485.1353

What are the effects of a per-unit tax on the sales of a good? The answer in standard economics textbooks is a reduction in quantity and an increase in price. However, the homogeneous-product assumption in such treatments is not always correct because the taxed product is frequently sold under numerous differentiated brands. In general, quantity and price adjustments to a per-unit tax increase may vary differentially by brand, which implies that tax incidence requires a more thorough analysis than the standard one. In this paper, we test a popular theoretical prediction that the effects of a per-unit tax on sales may be different for low-quality brands than for high-quality brands. We exploit two exogenous variations on per-unit charges (excise taxes and shipping costs) in the beer industry to study if quality is an important determinant of equilibrium quantity, prices and advertising expenditures. We find that, when faced with higher per-unit charges, the equilibrium price and quantity of a brand are usually positively associated with its quality level; similarly, higher per-unit charges appear to provide firms with an incentive to shift advertising effort towards brands of higher quality. We discuss implications for public policy and firm profitability.

Keywords: excise tax; quality; differentiated products; beer industry


Published Online: 2011-12-02


Citation Information: Journal of Agricultural & Food Industrial Organization. Volume 9, Issue 1, ISSN (Online) 1542-0485, DOI: https://doi.org/10.2202/1542-0485.1353, December 2011

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