State excise taxes and public choice : evidence from the U.S. brewing industry Public Deposited

http://ir.library.oregonstate.edu/concern/graduate_thesis_or_dissertations/n296x275p

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  • This paper presents a model of the determination of excise tax rates by studying the substantial variation in the state excise taxes in the U.S. brewing industry. Two approaches are used. First, assuming that the government is only interested in the public interest, a socially optimal tax rate is derived. The magnitude of the tax rate is determined by the negative externalities of drinking behavior imposed on nondrinkers. Second, a special interest group that engages in lobbying activity and makes campaign contributions is introduced into the model. The government not only cares about the welfare of the society, but is also concerned about the abundance of its campaign contributions. The lobbying activity by the interest group causes the tax rate to deviate from the social optimum. Data from the beer industry in 1992 and 1995 are employed in the estimation. Instrumental variable techniques are used to deal with endogenous consumption and heteroscedasticity. The estimation indicates that states with a production capacity one barrel per person higher than the average state will have a beer tax 20 cents per barrel lower than average. The paper provides evidence that the power of interest group hampers the economic efficiency of the local tax system.
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  • File scanned at 300 ppi (Monochrome) using Capture Perfect 3.0 on a Canon DR-9050C in PDF format. CVista PdfCompressor 4.0 was used for pdf compression and textual OCR.
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