Tax Incidence in a Vertical Supply Chain: Evidence from Cigarette Wholesale Prices

Abstract

I investigate how the burden of consumption taxes not borne by consumers is shared between upstream firms that produce a taxed good and downstream firms that sell the goods. Using novel data on monthly brand-level cigarette wholesale prices and retail prices from Nielsen homescan data, I find that downstream firms that sell cigarettes bear no more than one-third of the firm share of the tax burden.

Keywords: Tax Incidence, Consumption Taxes, Supply Chain

JEL Classification: H22, H32, H71, L11, K34, L66, D12