Edited by Emilio Albi and Jorge Martinez-Vazquez
Chapter 7: The Economics of Excise Taxation
Sijbren Cnossen 1 INTRODUCTION Excise duties used to be called the orphans of tax policy, because they received relatively little attention in the tax literature. This has changed greatly in recent years, due to growing awareness of the detrimental health effects of smoking and excessive drinking, as well as the social costs associated with the phenomenal increase in traffic. Perhaps more importantly, the environmental problems caused by the burning of fossil fuels have led to a burgeoning literature on the use of ‘corrective’ excises to restrain harmful emissions. Attention has also been given to the use of higher-than-average taxes on goods and services regarded as items of luxury consumption in order to enhance the progressivity of the overall tax burden distribution. As implied by these examples, excise systems can be defined to comprise all selective taxes or duties, related levies, and charges on tobacco, alcohol, gambling, petroleum products, motor vehicles, and other specific goods, services, and activities.1 Broadly speaking, the distinguishing features of excise taxation are selectivity in coverage, discrimination in intent, and often some form of quantitative measurement in determining the tax liability, along with the application of specific rates and physical controls over production for enforcement purposes. This contrasts with general consumption taxes, such as value-added taxes (VATs) – sometimes referred to as goods and services taxes (GSTs) – whose bases are typically defined to include all goods and services (hereinafter called commodities) other than those specifically exempted. VATs, moreover, are levied primarily to raise revenue, while their liability (determined...
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