Do Cigarette Excise Tax Rates Maximize Revenue?

David Merriman ()

Economic Inquiry, 1994, vol. 32, issue 3, 419-28

Abstract: James Buchanan and Dwight Lee (1982) suggest that politicians choose tax rates on the positively sloped segment of the short-run rate-revenue curve but the negatively sloped segment of the long-run curve. This paper uses recent estimates of the slope of the cigarette demand curve by Gary S. Becker, Michael Grossman, and Kevin M. Murphy (1994) to test the hypothesis. Becker, Grossman, and Murphy's parameter estimates combined with state-by-state data on key variables yields strong evidence against the hypothesis and instead suggests that marginal revenues from cigarette excise taxes are positive in every state. Copyright 1994 by Oxford University Press.

Date: 1994
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