ABSTRACT
Excise taxes may exert import effects on quality of product, and on selling effort. Excise taxes take no account of horizontal-equity standards; indeed, the taxes on addictives flout them. Certain excise taxes exert strong substitution effects, and therefore alter consumers' budget patterns substantially. The income effect of an excise becomes overwhelming and the substitution effect virtually nil when the tax is imposed on some physiological necessity within a price range where demand for it is perfectly inelastic: table salt in a high-income economy. In an open economy that imports an excise-taxed commodity that is marketed by firms that handle many other items simultaneously, virtually the entire incidence of the tax will be on the consumer. The "tax" imposed by the government monopoly is fixed in its "rate" by the administrative decree that sets the price of the product. A government monopoly can raise revenue while observing more closely than do taxes on the industry the consensus equity criterion.
