Tax Incidence When Quality Matters: Evidence from the Beer Market
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Christian Rojas
What are the effects of a per-unit tax on the sales of a good? The answer in standard economics textbooks is a reduction in quantity and an increase in price. However, the homogeneous-product assumption in such treatments is not always correct because the taxed product is frequently sold under numerous differentiated brands. In general, quantity and price adjustments to a per-unit tax increase may vary differentially by brand, which implies that tax incidence requires a more thorough analysis than the standard one. In this paper, we test a popular theoretical prediction that the effects of a per-unit tax on sales may be different for low-quality brands than for high-quality brands. We exploit two exogenous variations on per-unit charges (excise taxes and shipping costs) in the beer industry to study if quality is an important determinant of equilibrium quantity, prices and advertising expenditures. We find that, when faced with higher per-unit charges, the equilibrium price and quantity of a brand are usually positively associated with its quality level; similarly, higher per-unit charges appear to provide firms with an incentive to shift advertising effort towards brands of higher quality. We discuss implications for public policy and firm profitability.
©2012 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
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Articles in the same Issue
- Article
- Tax Incidence When Quality Matters: Evidence from the Beer Market
- Market Efficiency in the Non-Genetically Modified Soybean Futures Market
- Do Taxes Produce Better Wine?
- Economic Effects of Purity Standards in Biotech Labeling Laws
- Does the Prevalence of Contract Hog Production Influence the Price Received by Independent Hog Producers?
- Impact of Country-of-Origin Labeling on Bovine Meat Trade
- Geographical Indications and The Trade Related Intellectual Property Rights Agreement (TRIPS): A Case Study of Basmati Rice Exports
- Measuring Consumers' Attachment to Geographical Indications
- Willingness to Pay for Fair Trade Coffee: A Conjoint Analysis Experiment with Italian Consumers
- Pressure Group Competition and GMO Regulations in Sub-Saharan Africa - Insights from the Becker Model
- Price Transmission and Volatility in the Greek Broiler Sector: A Threshold Cointegration Analysis
- Livestock Mandatory Price Reporting: A Literature Review and Synthesis of Related Market Information Research
