Essays on excise taxation: Cross -border effects, quality substitution, and tax earmarking

This dissertation is a collection of essays examining the secondary effects of excise taxation. The first chapter discusses the history of the excise tax in the United States and provides an introduction to some of the major areas of research examining the excise tax. In addition, this chapter outlines the research agenda for the dissertation. Chapter 2 considers the effects of cross-border sales and tourism on state tax revenues from wine and liquor taxation in the state of West Virginia. The empirical results of this chapter suggest that the revenue impact of cross-border shopping and tourism is economically significant relative to the total tax revenue collected from these sources. Chapter 3 empirically analyzes the effects of the gasoline excise tax on the purchase of gasoline grade. The results show that the per-unit excise tax causes consumers to substitute toward higher quality (higher octane) gasoline while the ad valorem excise tax exerts little influence on the purchase of gasoline grade. Chapter 4 builds upon the previous chapter by modifying the empirical model to control for spatial dependence and controlling for the impact that cross-border shopping may have on the purchase of quality. The results suggest that an increase in a state's per-unit excise tax induces two conflicting effects on the purchase of product quality, with the cross-border effect dominating the relative-price effect. Thus, an increase in a state's per-unit excise tax is found to cause a decline in average product quality in the state. Chapter 5 examines the potential for crowd-out in state highway financing. The results indicate that states respond to federal grants and state earmarked revenues similarly and that these sources of revenue do not cause crowding-out. Finally, Chapter 6 summarizes the major findings of the previous chapters and discusses areas of future research.