This study develops a simple model for analyzing excise tax setting in a competitive framework. Specifically, the model predicts that tax rate competition will vary for different goods based on the relative ease of cross-border shopping. To test the model, this study utilizes a dynamic space-time panel econometric model to quantify the horizontal response function for cigarette, beer, and gasoline tax rates for US states from 1960 to 2007. The empirical findings support the model predictions. Only cigarette tax rates have a horizontal response function statistically different from zero.
AngristJ.KruegerA. B.. 2001. “Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments.” The Journal of Economic Perspectives15 (4): 69–85. http://zmjones.com/static/causal-inference/angrist-jep-2001.pdf. Accessed January 16, 2012.
2.
BellemareM. F.MasakiT.PepinskyT. B.. 2015. “Lagged Explanatory Variables and the Estimation of Causal Effects.” Journal of Politics79 (3):949–63. SSRN 2568724. https://mpra.ub.uni-muenchen.de/62350/1/MPRA_paper_62350.pdf. Accessed December 15, 2015.
3.
BerryW. D.FordingR. C.RingquistE. J.HansonR. L.KlarnerC. E.. 2010. “Measuring Citizen and Government Ideology in the US States: A Re-appraisal.” State Politics & Policy Quarterly10:117–35.
4.
BerryW. D.RingquistE. J.FordingR. C.HansonR. L.. 1998. “Measuring Citizen and Government Ideology in the American States, 1960-93.” American Journal of Political Science42:327–48.
5.
BesleyT. J.RosenH. S.. 1998. “Vertical Externalities in Tax Setting: Evidence from Gasoline and Cigarettes.” Journal of Public Economics70:383–98.
6.
BolognaJ.YoungA. T.LacombeD. J.. 2016. “A Spatial Analysis of Incomes and Institutional Quality: Evidence from US Metropolitan Areas.” Journal of Institutional Economics12:191–216.
DevereuxM. P.LockwoodB.RedoanoM.. 2007. “Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence from the USA.” Journal of Public Economics91:451–79.
12.
EggerP.PfaffermayrM.WinnerH.. 2005. “An Unbalanced Spatial Panel Data Approach to US State Tax Competition.” Economics Letters88:329–35.
13.
Esteller-MoréA.RizzoL.. 2014. “US Excise Tax Horizontal Interdependence: Yardstick versus Tax Competition.” The Annals of Regional Science52:711–37.
14.
FarrellyM. C.NimschC. T.JamesJ.. 2003. “State Cigarette Excise Taxes: Implications for Revenue and Tax Evasion.” Report, Tobacco Technical Assistance Consortium. http://spectra.rti.org/pubs/8742_Excise_Taxes_FR_5-03.pdf. Accessed January 16, 2012.
15.
FredrikssonP. G.MamunK. A.. 2008. “Vertical Externalities in Cigarette Taxation: Do Tax Revenues Go Up in Smoke?” Journal of Urban Economics64:35–48.
HofferA. J.2016. “Special-interest Spillovers and Tobacco Taxation.” Contemporary Economic Policy34:146–57.
18.
HofferA. J.PellilloA.. 2012. “The Political Economy of Tobacco Control Expenditures.” Applied Economics Letters19:1793–97.
19.
KanburR.KeenM.. 1993. “Jeux Sans Frontières: Tax Competition and Tax Coordination When Countries Differ in Size.” The American Economic Review83:877–92.
20.
KeenM.1998. “Vertical Tax Externalities in the Theory of Fiscal Federalism.” Staff Papers-international Monetary Fund45:454–85.
NielsenS. B.2001. “A Simple Model of Commodity Taxation and Cross-border Shopping.” The Scandinavian Journal of Economics103:599–623.
23.
OrzechowskiW.WalkerR.. 2008. “The Tax Burden on Tobacco.” Historical Compilation39.
24.
ParentO.LeSageJ. P.. 2010. “A Spatial Dynamic Panel Model with Random Effects Applied to Commuting Times.” Transportation Research Part B: Methodological44:633–45.
25.
ParentO.LeSageJ. P.. 2011. “A Space-time Filter for Panel Data Models Containing Random Effects.” Computational Statistics & Data Analysis55:475–90.
26.
RizzoL.2010. “Interaction between Federal Taxation and Horizontal Tax Competition: Theory and Evidence from Canada.” Public Choice144:369–87.
