William Sims

Interprovincial versus international free trade: the brewing industry

This paper examines the potential welfare changes resulting from the removal of the interprovincial and international trade barriers currently in place in the brewing industry. Using a cost function estimated on plant-level data, the authors find that the potential gains from rationalizing production, following liberalizing trade between Canadas provinces, outweigh the further benefits that would result from free trade in the international sphere, given interprovincial free trade. The rationalization of the industry in terms of a reduced number of plants could lead to producer gains (on a recurring basis) equal to as much as 15 percent of expenditures at markets prices.

Tobacco Control Legislation and Resource Allocation Effects

In December 1995 Health Canada published Tobacco Control: A Blueprint to Protect the Health of Canadians which outlines the Government of Canadas new strategy to reduce tobacco consumption. Bill C-71, The Tobacco Act, was subsequently introduced, and received royal assent in April, 1997. The objective of this paper is to use input-output analysis to examine the resource allocation effects of a reduction in tobacco consumption that would likely result from this legislation. We find that significant reallocation effects may occur, and the employment effects may be more severe in the public than in the private sector.

THE WELFARE EFFECTS OF ALCOHOL TAXATION

This paper analyses the question of how to appropriately tax alcoholic beverages at a disaggregated level. Using the theory of tax reform, the social cost of raising revenue from different alcoholic beverages is calculated. The externality associated with alcohol consumption is explicitly modeled. In conjunction with unusually high wedges between producer and consumer prices, this leads to results rarely encountered in the literature of the welfare effects of taxation. The problem is approached by building a multistage budgeting model of expenditure. This is necessitated by the availability of elasticity information only for aggregates of the goods in question while pricing policy must be developed at a more disaggregated level. The model is applied to a data set for 1989 for the province of Ontario, Canada. We find that there is a major scope for welfare-improving tax changes, but that such changes depend crucially upon the magnitude of the externality associated with alcohol consumption.

A Taxing Dilemma: Assessing the Impact of Tax and Price Changes on the Tobacco Market

Sales of contraband cigarettes in Canada constitute a sizable component of the tobacco market. This illegal trade is associated with a loss in tax revenue and an array of illicit activities that involve gangs and organized crime. Various policy responses have been called for to counter this state of affairs. Increased policing and controls have resulted in the market share of the illegal product declining significantly to about 20 percent in 2010 from about one-third two years earlier. In addition to allocating more resources in order to control the problem, governments have been urged to lower tobacco taxes in the belief that lower relative prices for the legal product will induce smokers to switch in significant numbers away from the illegal supply source, perhaps also increasing tax revenues. This report analyzes the impact of tax and price changes on the composition of the cigarette market in the context of a demand-driven analytical model, in which smokers shift between legal and illegal products to a significant degree.

The simple analytics of tobacco taxation with illegal supply

This paper examines the impact of tobacco excise taxes where legal and illegal supplies coexist. The governments objective is to minimize cigarettes smoked in the economy (or to maximize revenue or to minimize illegal activity). It reacts to a competitive illegal supply in an adjoining jurisdiction. A model of consumer choice is used to demonstrate how demand response to tax changes can yield counterintuitive results. While the model mimics the Canadian market, similar situations characterize the US and European markets. A novel element of the paper is the treatment of externalities on the supply side rather than the demand side.

The Impact on the Quebec Economy of a Disruption of Trade Relations between Quebec and Its Major Trading Partners

This paper analyses the impact on the Quebec economy of the reactions of the private sector to possible future changes in the economic relations between Quebec and its major trading partners. The analysis is conducted with a general equilibrium model of the Quebec economy. The basic changes analysed are: (a) the mutual introduction of internal tariffs between Quebec and the rest of Canada, (b) the adoption of a separate Quebec currency and (c) the establishment of free trade between either Canada as a whole, or Canada excluding Quebec, and the United States.