Short-Run Tax Incidence when there is Stockpiling: Evidence from Oregon Marijuana Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_projects/zw12z9811

2017

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  • Tax incidence involves the study of the pass-through rate of a tax. For example, does a 1 percent increase in a sales tax on a commodity cause the consumer price to go up by exactly 1 percent (full-shifting), less than 1 percent (under-shifting), or more than 1 percent (over-shifting). Theoretical models in economics predict that any one of these outcomes is possible. Tax incidence is important in markets where policymakers want to use a price increase to reduce consumption (e.g., in alcohol, cigarettes and marijuana markets) and to raise tax receipts. In Oregon, on January 1, 2016, the tax on recreational marijuana to consumers rose from 0 % to 25 %. This research aims to determine the impact of 25 % tax on the retail price of marijuana in Oregon. The Difference-in-Differences (DD) estimation technique is used, and the effect of stockpiling is considered. The results indicate that the price of smokable marijuana increased by 0.1 % per gram, post-taxation. On the other hand, the price of consumable marijuana decreased by 5.4 % per unit. In addition to stockpiling, a relatively high elasticity of demand and relatively higher variation and distribution in the prices of consumable marijuana helps to explain the diverging price effects of the tax.
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