Wine Taxes, Production, Aging and Quality

Rachael Goodhue, Jeffrey LaFrance () and Leo Simon ()
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Leo Simon: School of Economic Sciences, Washington State University

No 2009-04, Working Papers from School of Economic Sciences, Washington State University

Abstract: We consider the impact of taxes on the quantity and quality produced of goods, such as wine, for which market value accrues with age by a competitive producer. Any pair of taxes that includes a volumetric sales tax and any one of three other types of tax – an ad valorem sales tax, an ad valorem storage tax, or a volumetric storage tax – spans the full range of feasible tax revenues with positive tax rates. For any tax system that reduces quality relative to the firm’s no-tax equilibrium, there is another tax system that increases tax revenues, eliminates the quality distortion, and does not increase the quantity distortion. Many wine industry observers believe that most, if not all, existing tax systems tend to result in the suboptimal provision of quality. Our results suggest that the wide variety of wine tax systems is not prima facie evidence that these systems, or most of them, are inefficient. Provided the system includes a volumetric sales tax it may be efficient, regardless of which of the other instruments, or how many of them, are used. Assertions regarding inefficiency must be evaluated on an empirical case-by-case basis. Our analysis provides a theoretical framework for such research.

Keywords: aging; Alchian-Allen effect; tax policy; wine (search for similar items in EconPapers)
Pages: 26 pages
Date: 2009-02
New Economics Papers: this item is included in nep-acc, nep-agr, nep-cul and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: Wine Taxes, Production, Aging and Quality* (2009)
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