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.
Carbonnier, C. 2008. “Différence des ajustements de prix à des hausses ou baisses des taux de la TVA: un examen empirique à partir des réformes françaises de 1995 et 2000.” Economie Et Statistique413:3–20.
Carbonnier, C. 2008. “Différence des ajustements de prix à des hausses ou baisses des taux de la TVA: un examen empirique à partir des réformes françaises de 1995 et 2000.” Economie Et Statistique413:3–20.10.3406/estat.2008.7033)| false
Delipalla, S., and O.O’Donnell. 2001. “Estimating Tax Incidence, Market Power and Market Conduct: The European Cigarette Industry.” International Journal of Industrial Organization19:885–908.10.1016/S0167-7187(99)00057-0)| false
Dröge, S., and P. J.Schröder. 2009. “The Welfare Comparison of Corrective Ad Valorem and Unit Taxes Under Monopolistic Competition.” International Tax and Public Finance16:164–75.10.1007/s10797-007-9061-9)| false
Dungan, P., J.Mintz, F.Poschmann, and T.Wilson. 2008. “Growth Oriented Sales Tax Reform for Ontario: Replacing the Retail Sales Tax with a 7.5 Percent Value-Added Tax,” C.D. Howe Institute Commentary.
Dungan, P., J.Mintz, F.Poschmann, and T.Wilson. 2008. “Growth Oriented Sales Tax Reform for Ontario: Replacing the Retail Sales Tax with a 7.5 Percent Value-Added Tax,” C.D. Howe Institute Commentary.)| false
Smart, M., and R. M.Bird. 2009. “The Economic Incidence of Replacing a Retail Sales Tax with a Value-Added Tax: Evidence From Canadian Experience.” Canadian Public Policy35:85–97.10.3138/cpp.35.1.85)| false
The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.