Estimating Tax Incidence, Market Power and Market Conduct: The European Cigarette Industry

Recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under-shifted onto consumers in the presence of imperfect competition. These results are used to derive a method of estimating market power and conduct. An application is made to the European cigarette industry. Previous empirical comparison of the price effects of ad valorem and specific taxes is limited. For a group of countries with broadly similar cigarette industries, there is evidence of undershifting of both taxes, with the specific tax having a significantly greater impact on price. The extremes of both perfect competition and monopoly can be rejected. Behaviour is no less competitive than the equivalent of Cournot

The Comparison Between Ad Valorem and Specific Taxation under Imperfect Competition: Evidence from the European Cigarette Industry

Recent theoretical work has shown that the incidence of ad valorem and specific taxes may differ and each may be over or under-shifted onto consumers in the presence of imperfect competition. Empirical comparison of the price effects of the two taxes is limited. There are no previous estimates of these effects derived from data displaying reasonable variation in both types of taxes. We fill this gap by estimating the impact on prices of specific and ad valorem taxes levied on cigarettes in Europe. The results are consistent with the theory. There is evidence of under and over-shifting and the specific tax has a significantly greater effect on price than the ad valorem

Commodity Taxes, Wage Determination and Profits

We examine the effects of two different types of commodity taxation, specific and ad valorem, on wages and profits. We analyze two models of wage determination, one with efficiency wage setting and one with bargaining between a union and a firm. In the former, a (locally) revenue-neutral shift from specific to ad valorem taxation leads to an increase in both employment and wages, and a reduction in profitability. In the bargaining case however, the effect on wages and profits may be reversed: predominantly ad valorem taxation raises employment but lowers wages, and under certain circumstances, the net effect can lead to an increase in profits

The Political Economy of a Publicly Provided Private Good with Adverse Selection

Given heterogeneity in incomes and health risks, with asymmetric information in the latter, preferences over the public-private mix in health insurance and care are derived. Results concerning crowding-out in the presence of adverse selection are established. For low-risk individuals, crowding-out depends on risk aversion. A set of such individuals prefers a mixed public-private health care system. A majority-voting equilibrium exists. Under weak assumptions about the income distribution and tax function, both public and private sectors exist in the equilibrium. Comparing information regimes, public provision is more likely to be positive, and will not be lower, under asymmetric information. In the presence of asymmetric information, the equilibrium is more complicated than the "ends-against-the-middle" variety derived elsewhere in the literature

Tax evasion in a Cournot oligopoly with endogenous entry

If an additional competitor reduces output per firm in a homogenous Cournot-oligopoly, market entry will be excessive. Taxes can correct the so-called business stealing externality. We investigate how evading a tax on operating profits affects the excessive entry prediction. Tax evasion raises the number of firms in market equilibrium and can alter their welfare-maximizing number. In consequence, evasion can aggravate or mitigate excessive entry. Which of these outcomes prevails is determined by the direct welfare consequences of tax evasion and the relationship between evasion and the tax base. We also determine conditions which imply that overall welfare declines with tax evasion

Tobacco Tax Structure and Smuggling

In a noncompetitive environment, a tax increase leads to a higher fraction of sales smuggled under pure ad valorem taxation, but the effect is ambiguous under a purely specific tax. Under a mixed tax regime, a tax rise increases the fraction of sales smuggled when the balance of the two types of taxes leans towards the ad valorem component. In any case, shifting the balance towards the predominant tax component reduces smuggling. The results are of direct relevance to global tobacco control policies and, in particular, to the smoking intervention and tax harmonization policies in the European Union.smuggling, specific taxes, ad valorem taxes, tobacco control, European tax policy

The Economic Costs of Smoking in Greece

Greece is among the countries with the highest smoking prevalence (43.8% for ages 15+), ranking third globally and second among EU countries. The high proportion of smoking population makes smoking the leading risk factor for death and disability. This habit has a detrimental impact on health, creating a cost to society. Our aim is to measure the economic cost of diseases attributable to smoking and secondhand smoke in Greece. The method used is the Cost of Illness approach. The economic cost consists of direct costs, such as healthcare expenditures, and indirect costs capturing the productivity loss due to morbidity and mortality. Using estimated smoking attributable deaths and disability from the Global Burden of Diseases Study 2016, we find that the total economic cost is € 6.88 billion (3.95% of GDP); 8.9% of total cost is attributable to secondhand smoke; the direct cost of smoking (secondhand smoke) is slightly less (more) than the indirect cost; the indirect cost is higher for males; musculoskeletal disorders and cardiovascular diseases comprise the greatest fraction of morbidity and mortality cost, respectively. Smoking imposes a heavy economic burden in Greece, underlining the need for efficient interventions, including better implementation of existing policies