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Do Taxes Produce Better Wine?

Martin Ljunge

No 11-28, Discussion Papers from University of Copenhagen. Department of Economics

Abstract: Theory predicts that unit taxes increase the quality consumed in a market since unit taxes reduce the relative price of high quality goods. Ad valorem taxes, on the other hand, have no effect on relative prices and should not affect product quality. The hypothesis is tested empirically in the US wine market. I find that the market share of high quality wine is significantly increased by unit taxes and that there is no significant effect of ad valorem taxes, in accordance with the hypothesis and previous empirical studies.

Keywords: Quality Choice; Unit Tax; Tax Distortion (search for similar items in EconPapers)
JEL-codes: D12 H31 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2011-10-14
New Economics Papers: this item is included in nep-mkt and nep-pub
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Citations: View citations in EconPapers (3)

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