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Do Taxes Produce Better Wine?

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  • Ljunge Martin

Abstract

Theory predicts that unit taxes increase the quality consumed in a market, since unit taxes reduce the relative price of high quality goods. Ad valorem taxes, on the other hand, have no effect on relative prices, and should not affect product quality. The hypothesis is tested empirically in the US wine market. I find that the market share of high quality wine is significantly increased by unit taxes, and that there is no significant effect of ad valorem taxes, in accordance with the hypothesis and previous empirical studies.

Suggested Citation

  • Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.
    • Handle: RePEc:bpj:bjafio:v:9:y:2011:i:1:n:12
    DOI: 10.2202/1542-0485.1359
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    1. Feenstra, Robert C., 1995. "Estimating the effects of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 30, pages 1553-1595, Elsevier.
    2. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-887, August.
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    8. Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.
    9. repec:wvu:wpaper:05-11 is not listed on IDEAS
    10. Goolsbee, Austan, 2004. "Taxes and the quality of capital," Journal of Public Economics, Elsevier, vol. 88(3-4), pages 519-543, March.
    11. Rojas Christian & Shi Tianji, 2011. "Tax Incidence When Quality Matters: Evidence from the Beer Market," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-35, December.
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    Cited by:

    1. Ljunge Martin, 2011. "Do Taxes Produce Better Wine?," Journal of Agricultural & Food Industrial Organization, De Gruyter, vol. 9(1), pages 1-16, December.
    2. Philipp J. H. Schröder & Allan Sørensen, 2021. "Specific taxation, asymmetric costs, and endogenous quality," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(5), pages 1022-1051, October.
    3. 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.

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    More about this item

    Keywords

    quality choice; unit tax; ad valorem tax; tax distortion; wine;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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