Political Economic Effect of Tax Illusion on the Excise Tax Policy －An Empirical Study in UK Cigarette Tax Case－

No analysis of tax policy is complete unless it includes an explicit recognition of the public choice environment where tax policy is made. There is recognition that excise taxes are the product of political pressures, rather than the mechanical application of standard welfare economics. When the political environment is considered, selective excise taxes have political costs associated with them. In addition to the administration and compliance costs of taxation as well as the welfare cost of taxation, the ‘political costs’ of the tax system are also significant, but are less often recognized in economic analysis. We extend Lee and Lee(2007) by integrating several important factors into a vote maximizing model of legislature and attempt to assess empirically how these factors influence actual tax policy in the UK cigarettes case. Our empirical estimates indicate the possibility that the UK cigarette excise tax policy can be influenced by the complexity or invisibility of the tax system,but also depend upon the border opening and tax competition effect.