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DO CIGARETTE EXCISE TAX RATES MAXIMIZE REVENUE?
Author(s) -
Merriman David
Publication year - 1994
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/j.1465-7295.1994.tb01340.x
Subject(s) - excise , economics , grossman , revenue , econometrics , tax revenue , state (computer science) , microeconomics , public economics , macroeconomics , keynesian economics , mathematics , finance , algorithm
Buchanan and Lee [1982] suggest that politicians choose tax rates on the positively sloped segment of the short‐run rate‐revenue curve but the negatively sloped segment of the long‐run curve. This paper uses recent estimates of the slope of the cigarette demand curve by Becker, Grossman and Murphy [1994] to test the hypothesis. Becker, Grossman and Murphy's parameter estimates combined with state‐by‐state data on key variables yields strong evidence against the hypothesis and instead suggests that marginal revenues from cigarette excise taxes are positive in every state.