THE EFFICIENCY EFFECTS OF AN EXCISE TAX IN A GENERALIZED COURNOT OLIGOPOLY MODEL WITH AN APPLICATION TO THE UNITED-STATES CIGARETTE INDUSTRY

The efficiency effects of an excise tax imposed on an oligopolistic industry will be different from those obtained under perfect competition because (1) the extent to which taxes are shifted will differ and (2) the gap between price and marginal cost which occurs under imperfect competition will exacerbate the efficiency loss. In this paper, the Dixit-Stem conjectural variations model is used to derive general expressions for tax-shifting, excess burden, and the marginal cost of public funds from an excise tax. These expressions are used to calculate the average excess burden per dollar of revenue and the marginal cost of public funds from excise taxes on cigarettes in the United States.