Outstanding Paper Award for Public Finance Review

We are pleased to congratulate Javier Espinosa of Rochester Institute of Technology and William N. Evans of at the University of Notre Dame who have received Public Finance Review‘s Outstanding Paper Award for 2013. Their paper “Excise Taxes, Tax Incidence, and the Flight to Quality: Evidence from Scanner Data” appeared in the March 2013 issue of Public Finance Review.

Editor James Alm commented:

Their paper contributes important new empirical evidence on the effects of excise taxes.  When a taxed product has multiple characteristics (e.g., quality differences), a rise in an excise tax on the product may result in a substitution effect where consumers shift away from the product’s characteristics that are taxed toward other characteristics that go untaxed. Professors Espinosa and Evans focus on this issue by considering whether higher tax rates on cigarettes induce a shift to higher quality cigarettes.  Using high-frequency scanner data on cigarette sales from 812 stores covering twenty-nine states over a six-year period, they examine whether tax hikes encourage a flight to quality, estimating a longitudinal model with both state- and time-fixed effects.  Their results demonstrate that a one-cent hike in taxes increases retail prices of name-brand and generic cigarettes by exactly one cent.  They also find no tax-induced substitution toward name brands but a large substitution away from carton to pack sales, suggesting that tax hikes encourage within-product changes in purchase but little between-product substitution.  Their paper contributes in important ways both to the literature that examines the incidence of sales and excise taxes, and to the literature about whether excise taxes affect the quality of products purchased.

The abstract of  “Excise Taxes, Tax Incidence, and the Flight to Quality: Evidence from Scanner Data”:

Because excise taxes are independent of product price, rate hikes are predicted to lower the relative cost of high-priced goods, encouraging a shift toward their purchase. Using scanner data on cigarette sales from twenty-nine states over a six-year period, we examine whether tax hikes encourage a flight to quality. Results demonstrate that a one-cent hike in taxes increases retail prices of name-brand and generic cigarettes by exactly one cent. We find no tax-induced substitution toward name brands but a large substitution away from carton to pack sales, suggesting that tax hikes encourage within-product changes in purchase but little between-product substitution.

Read “Excise Taxes, Tax Incidence, and the Flight to Quality: Evidence from Scanner Data” from Public Finance Review for free by clicking here. Make sure to stay up to date on awards, articles and more from Public Finance Review by clicking here to sign up for e-alerts today!