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. / Graduation date: 1999
| Identifer | oai:union.ndltd.org:ORGSU/oai:ir.library.oregonstate.edu:1957/33621 |
| Date | 26 June 1998 |
| Creators | Feng, Hongrong |
| Contributors | Tremblay, Victor J. |
| Source Sets | Oregon State University |
| Language | en_US |
| Detected Language | English |
| Type | Thesis/Dissertation |
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