Economics and politics of excise taxation. In Theory and Practice of Excise Taxation: Smoking, Drinking, Gambling, Polluting and Driving. pp. 1-19

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• Determinants of illicit trade
• Illicit trade

Abstract

Excise taxes, broadly defined, are important revenue instruments. Their distinguishing features are selectivity in coverage, discrimination in intent, and often some form of quantitative measurement in determining the tax liability. The main objectives of excise taxation are to raise revenue for general purposes (Ramsey rule), to reflect external cost (Pigou prescription), to discourage consumption, and to charge road users for government-provided services. Some of the main issues in excise tax design concern the choice between specific and ad valorem rates and the trade-offs between taxes, tradable permits, and command-and-control regulations. Other issues are the proper coordination between excise taxes and value-added taxes and the desirable degree of harmonization in a single market.