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HORIZONTAL AND VERTICAL INDIRECT TAX COMPETITION: THEORY AND SOME EVIDENCE FROM THE USA

Michael Devereux (), Ben Lockwood () and Michela Redoano ()

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper provides a simple theoretical framework for analyzing simultaneous vertical and horizontal competition in excise taxes, and estimates equations informed by the theory on a panel of US state and federal excise taxes on cigarettes and gasoline. We also examine the role played by smuggling. The results are generally consistent with the theory, when the characteristics of the markets for the goods are taken into account. For neither good do federal excise taxes affect state taxes. Taxes in neighboring states have a significant and large effect in the case of cigarettes, and a much weaker effect in the case of gasoline. we also find that in the setting of cigarette taxes, concerns about cross-border shopping play a more important role than concerns about smuggling.

Keywords: tax competition; excise taxes; cross-border shopping; smuggling (search for similar items in EconPapers)
JEL-codes: H70 H71 H77 (search for similar items in EconPapers)
Date: 2004
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https://warwick.ac.uk/fac/soc/economics/research/workingpapers/2008/twerp704.pdf

Related works:
Journal Article: Horizontal and vertical indirect tax competition: Theory and some evidence from the USA (2007) Downloads
Working Paper: Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence from the USA (2004) Downloads
Working Paper: Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence From the USA (2004) Downloads
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