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Pass-through of Per Unit and ad Valorem Consumption Taxes: Evidence from Alcoholic Beverages in France

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  • Carbonnier Clément

    (University of Cergy-Pontoise – THEMA, 33 bd du port, Cergy-Pontoise 95000, France; Sciences-Po, LIEPP, 27 rue des Saints-Pères, Paris 75007, France)

Abstract

Economic theory states that in a market with imperfect competition, per unit consumption taxes should induce a greater increase in prices than ad valorem consumption taxes. This implies that consumers bear a greater share of the tax burden with per unit consumption taxes than that with ad valorem consumption taxes. This article seeks to test this theoretical result empirically using the French market for alcoholic beverages, which is subject to both per unit (excise taxes) and ad valorem (value-added tax, VAT) consumption taxes. Econometric analysis is applied to two consumption tax reforms affecting two distinct French markets for alcoholic beverages, those for beer and for aperitif. In 1995, the full rate of VAT increased from 18.6 to 20.6%; excise taxes on alcoholic beverages increased in 1997. Graphical evidence and econometric results confirm the statements of economic theory. For both classes of alcoholic beverages – beer and aperitif – the change in prices due to per unit excise taxes was significantly larger than that due to ad valorem VAT.

Suggested Citation

  • Carbonnier Clément, 2013. "Pass-through of Per Unit and ad Valorem Consumption Taxes: Evidence from Alcoholic Beverages in France," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(2), pages 837-863, September.
    • Handle: RePEc:bpj:bejeap:v:13:y:2013:i:2:p:837-863:n:22
    DOI: 10.1515/bejeap-2013-0047
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    3. Asatryan, Zareh & Gomtsyan, David, 2020. "The incidence of VAT evasion," ZEW Discussion Papers 20-027, ZEW - Leibniz Centre for European Economic Research.
    4. Fedoseeva, Svetlana & Van Droogenbroeck, Ellen, 2024. "Temporary VAT rate cuts and food prices in e-commerce," Journal of Retailing and Consumer Services, Elsevier, vol. 77(C).
    5. Sébastien Lecocq & Valérie Orozco & Christine Boizot‑Szantai & Céline Bonnet & Fabrice Etilé, 2023. "Alcohol Price Regulation in France: Choosing a Reform Scenario to Achieve Public Health and Tax Fairness Objectives," Economie et Statistique / Economics and Statistics, Institut National de la Statistique et des Etudes Economiques (INSEE), issue 541, pages 17-32.
    6. Hindriks, Jean & Serse, Valerio, 2019. "Heterogeneity in the tax pass-through to spirit retail prices: Evidence from Belgium," Journal of Public Economics, Elsevier, vol. 176(C), pages 142-160.
    7. Lindé, Jesper & Pescatori, Andrea, 2019. "The macroeconomic effects of trade tariffs: Revisiting the Lerner symmetry result," Journal of International Money and Finance, Elsevier, vol. 95(C), pages 52-69.
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    9. Aria Ardalan & Sebastian G. Kessing, 2021. "Tax pass-through in the European beer market," Empirical Economics, Springer, vol. 60(2), pages 919-940, February.
    10. Andrew Hanson & Ryan Sullivan, 2016. "Incidence and Salience of Alcohol Taxes," Public Finance Review, , vol. 44(3), pages 344-369, May.
    11. Pascal Belan & Clément Carbonnier & Martine Carré, 2021. "Fiscal Devaluation with Endogenous Markups: Productivity and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 123(4), pages 1159-1189, October.
    12. Vinish Shrestha & Sara Markowitz, 2016. "The Pass-Through Of Beer Taxes To Prices: Evidence From State And Federal Tax Changes," Economic Inquiry, Western Economic Association International, vol. 54(4), pages 1946-1962, October.
    13. Pascal Belan & Clément Carbonnier & Martine Carré, 2017. "Tax devaluation with endogenous margins," Working Papers hal-01515806, HAL.
    14. Nelson Jon P. & Moran John R., 2020. "Effects of Alcohol Taxation on Prices: A Systematic Review and Meta-Analysis of Pass-Through Rates," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 20(1), pages 1-21, January.
    15. Carbonnier, Clément, 2014. "The incidence of non-linear price-dependent consumption taxes," Journal of Public Economics, Elsevier, vol. 118(C), pages 111-119.
    16. Ce Shang & Anh Ngo & Frank J. Chaloupka, 2020. "The pass-through of alcohol excise taxes to prices in OECD countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(6), pages 855-867, August.

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