Excise taxes, tax incidence and the flight to quality: Evidence from scanner data
نویسندگان
چکیده
Because excise taxes are independent of product price, rate hikes are predicted to lower the relative cost of high-priced goods, encouraging a shift towards their purchase. Using scanner data on cigarette sales from 29 states over a six-year period, we examine whether tax hikes encourage a flight to quality. Results demonstrate that a 1¢ hike in taxes increases retail prices of name brand and generic cigarettes by exactly 1¢. We find no tax-induced substitution towards name brands but a large substitution away from carton to pack sales, suggesting that tax hikes encourage within-product changes in purchase but little between-product substitution. JEL classification: H22
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