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The substitution effect of cigarette excise tax for tobacco leaf tax in China

The substitution effect of cigarette excise tax for tobacco leaf tax in China Purpose – The purpose of this paper is to examine the increase in the cigarette excise tax needed to keep tax revenue constant in the face of the cancellation of the tobacco leaf tax. Design/methodology/approach – Equilibrium‐displacement model was employed to simulate the substitution effect. Findings – The results suggest the “substitution effect elasticity (SEE)” is between −0.127 and −0.063. This means a 100 per cent cut in the tobacco leaf tax rate would necessitate an increase in the cigarette excise tax rate of between 6.3 and 12.7 per cent. Sensitivity analysis indicates SEE is most sensitive to the retail demand elasticity and oligopoly power and least sensitive to input substitution elasticity and returns to scale. Originality/value – This paper provides a framework to analyze the policy effects of the Chinese tobacco industry. The findings in this study are very important for government to make policies in the future. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Agricultural Economic Review Emerald Publishing

The substitution effect of cigarette excise tax for tobacco leaf tax in China

China Agricultural Economic Review , Volume 2 (4): 11 – Nov 23, 2010

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Publisher
Emerald Publishing
Copyright
Copyright © 2010 Emerald Group Publishing Limited. All rights reserved.
ISSN
1756-137X
DOI
10.1108/17561371011097704
Publisher site
See Article on Publisher Site

Abstract

Purpose – The purpose of this paper is to examine the increase in the cigarette excise tax needed to keep tax revenue constant in the face of the cancellation of the tobacco leaf tax. Design/methodology/approach – Equilibrium‐displacement model was employed to simulate the substitution effect. Findings – The results suggest the “substitution effect elasticity (SEE)” is between −0.127 and −0.063. This means a 100 per cent cut in the tobacco leaf tax rate would necessitate an increase in the cigarette excise tax rate of between 6.3 and 12.7 per cent. Sensitivity analysis indicates SEE is most sensitive to the retail demand elasticity and oligopoly power and least sensitive to input substitution elasticity and returns to scale. Originality/value – This paper provides a framework to analyze the policy effects of the Chinese tobacco industry. The findings in this study are very important for government to make policies in the future.

Journal

China Agricultural Economic ReviewEmerald Publishing

Published: Nov 23, 2010

Keywords: China; Tobacco; Cigarettes; Taxes; National economy; Customs and excise duties

References