Excise Tax Setting in a Dynamic Space-time Framework

Adam J. Hoffer, Donald J. Lacombe

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

Abstract

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.

Original languageEnglish
Pages (from-to)628-646
Number of pages19
JournalPublic Finance Review
Volume45
Issue number5
DOIs
StatePublished - Sep 1 2017

Keywords

  • dynamic space-time model
  • horizontal tax competition
  • spatial econometrics

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