One Markup to Rule Them All: Taxation by Liquor Pricing Regulation

January 13, 2018

Government often chooses simple rules to regulate industry even when firms and consumers are heterogeneous. We evaluate the implications of this practice in the context of alcohol pricing where the regulator uses a single markup rule that does not vary across products. We estimate an equilibrium model of wholesale pricing and retail demand for horizontally differentiated spirits that allows for heterogeneity in consumer preferences based on observable demographics. We show that the single markup increases market power among upstream firms, particularly small firms whose portfolios are better positioned to take advantage of the policy. For consumers, the single markup acts as a progressive tax by overpricing products favored by the rich. It also decreases aggregate consumer welfare though 16.7% of consumers are better off under the policy. These consumers tend to be older, less wealthy or educated, and minorities. Simple policies therefore generate significant cross-subsidies and may be an effective tool for government to garner favor of key constituencies.

via One Markup to Rule Them All: Taxation by Liquor Pricing Regulation by Eugenio Miravete, Katja Seim, Jeff Thurk :: SSRN

Should Governments Invest More in Nudging?

December 18, 2017

Governments are increasingly adopting behavioral science techniques for changing individual behavior in pursuit of policy objectives. The types of “nudge” interventions that governments are now adopting alter people’s decisions without resorting to coercion or significant changes to economic incentives. We calculate ratios of impact to cost for nudge interventions and for traditional policy tools, such as tax incentives and other financial inducements, and we find that nudge interventions often compare favorably to traditional interventions. We conclude that nudging is a valuable approach that should be used more in conjunction with traditional policies, but more relative effectiveness calculations are needed.

via Should Governments Invest More in Nudging? by Shlomo Benartzi, John Beshears, Katherine Milkman, Cass Sunstein, Richard Thaler, Maya Shankar, Will Tucker-Ray, William Congdon, Steven Galing :: SSRN

New Evidence on the Causal Impact of Traffic Safety Laws on Drunk Driving and Traffic Fatalities

December 17, 2017

In the United States, about 28 lives are lost daily in motor vehicle accidents that involve an alcohol-impaired driver. The conventional wisdom is that these accidents can be prevented through the use of strict traffic laws that are robustly enforced, though no consensus exists on the causal impact of these laws in reducing motor vehicle-related fatalities. This paper exploits quasi-random variation in state-level driving and road safety restrictions to estimate the causal effect of select traffic laws on the number of fatal accidents and fatal accidents involving a drunk driver. In this paper, we employ the contiguous-border county-pair approach. This is causally identified from the discontinuities in policy treatments among homogeneous contiguous counties that are separated by a shared state border. This approach addresses the econometric issues created due to spatial heterogeneity that may have biased several studies in the literature. The analysis reveals that the laws related to accident prevention, such as having a good graduated licensing system, Pigovian beer taxes, and primary seatbelt enforcement, are the most effective in reducing motor vehicle-related fatalities. Using these estimated coefficients, simple simulations suggest that policymakers have been utilizing existing traffic laws sub-optimally, saving only 17% of the lives lost to motor vehicle crashes.

via New Evidence on the Causal Impact of Traffic Safety Laws on Drunk Driving and Traffic Fatalities by Nicholas Wright, La-Troy Lee :: SSRN

Soda Taxes as a Legal and Social Movement

December 12, 2017

In the last few years, several local governments have adopted new soda taxes. Other localities currently are considering adopting such a tax. In this Article, we consider whether soda taxes are becoming a more common local policy throughout the country — like local smoking restrictions — or whether, instead, they will remain a limited legal phenomenon. We focus on two potential obstacles to the widespread adoption of local soda taxes: (1) policy-based objections to the taxes as regressive and unduly paternalistic, which could undermine political support for their adoption at the local level; and (2) state preemption of local taxes, often achieved at the behest of the beverage industry. As we explain later, the principal risk of preemption vis-à-vis soda taxes does not come from the state courts in the form of decisions finding implied or field preemption, but rather from state statutes that expressly, unequivocally preempt such taxes. In almost all states, such express preemption would be considered lawful by the courts and would be effective in depriving localities of the power to impose taxes on soda.

via Soda Taxes as a Legal and Social Movement by David Dana, Janice Nadler :: SSRN

The Health Impact of Alcohol Taxes

December 6, 2017

Chaloupka’s studies are single-market studies, which means that he does not look at the interaction effects or substitution effects from other markets. For example, an increase in alcohol prices may put a high burden on lower income individuals, who may substitute alcohol for more dangerous chemicals. Low-income individuals may decide to seek opioids or inhalants instead of drinking alcohol, considerably more dangerous behaviors. Such a scenario would mean deaths from alcohol might shift to deaths from opioid overdose or inhalation. In this case, death from alcohol would fall statistically as taxes on alcohol increase, but deaths in all of society would increase. This partial, rather than general, analysis of the economy could lead decision-makers to implement policies with unintended and dangerous consequences.

via The Health Impact of Alcohol Taxes – Tax Foundation

How Do Informational Prompts Affect Choices in the School Lunchroom? by Chien-Yu Lai, John A. List, Anya Savikhin Samek :: SSRN

March 6, 2017

Obesity rates have doubled in the last forty years, and a major cause is the consumption of sugar-sweetened beverages. In this paper, we identify channels through which information – about health benefits or taste – affects beverage choice. We conduct a field experiment in a school lunchroom with 2,500 children, evaluating the impact of informational prompts on beverage choice and consumption over 2 weeks. We find that prompts alone increase the proportion of children choosing and consuming the healthier white milk relative to sugar-sweetened chocolate milk from 20% in the control group to 30% in the treatment groups. Adding health or taste messaging to the prompt does not seem to make a difference. We survey students and find that most prompts affect perceived healthfulness of the milk, but not perceived taste. Finally, we find that the prompts are nearly as effective as a small non-monetary incentive.

Source: How Do Informational Prompts Affect Choices in the School Lunchroom? by Chien-Yu Lai, John A. List, Anya Savikhin Samek :: SSRN

Empty Discarded Pack Data and the Prevalence of Illicit Trade in Cigarettes by Alberto Aziani, Jonathan Kulick, Neill Norman, James E. Prieger :: SSRN

February 12, 2017

Illicit trade in tobacco products (ITTP) is big business in the United States and creates many harms including reduced tax revenues; damages to the economic interests of legitimate actors; funding for organized-crime and terrorist groups; negative effects of participation in illicit markets, such as violence and incarceration; and reduced effectiveness of smoking-reduction policies, leading to increased damage to health.

To improve data availability for study in this area, we describe and make available a large, novel set of data from empty discarded pack (EDP) studies. In EDP studies, teams of researchers collect all cigarette packs discarded (either in trash receptacles or as litter) in the public spaces of selected neighborhoods. Packs are examined for the absence of local tax stamps, signs of non-authentic packaging or stamps, and other indications of potential tax evasion or counterfeit product. We describe the data and analyze the prevalence of ITTP. Data from 23 collections in 10 U.S. cities from 2010 to 2014 are available, yielding 106,500 observations (by far the largest dataset of its kind available for academic study). Each observation includes dozens of variables covering the brand, location to the ZIP code level, tax status, counterfeit status, and other information about the pack.

There is significant evidence of tax avoidance (up to 74% of packs in New York City). In some markets there is also a significant amount of illicit trade (up to over half the market in New York City), which includes bootlegging, counterfeits, cigarettes produced for illicit-market sales, and cigarettes without any tax stamps. These data will be highly useful for research in illicit markets and organized crime.

Source: Empty Discarded Pack Data and the Prevalence of Illicit Trade in Cigarettes by Alberto Aziani, Jonathan Kulick, Neill Norman, James E. Prieger :: SSRN