AAWE, Economics Dept, New York University, 19 W 4th St, 6Fl., New York NY 10012aawe@wine-economics.org

AAWE Working Paper No. 125 – Economics

 

From Internal Taxes to National Regulation:
Evidence from a French Wine Tax Reform
at the turn of the Twentieth Century

Raphaёl Franck, Noel D. Johnson and John V.C. Nye

Abstract

The growth of the modern regulatory state is often explained in terms of an unambigu- ous increase in regulation driven by the actions of central governments. Contrary to this traditional narrative, we argue that governments often strove to weaken the autar- kic tendencies of regional laws, thereby promoting greater trade and a more integrated market. For this purpose, we focus on the wine industry in France at the turn of the twentieth century and take advantage of a quasi-natural experiment generated by a law implemented on 1 January 1901 which lowered and harmonized various local tax rates. We show that high internal taxes on wine, set by regional governments, discouraged trade and protected small producers. We then trace how the political response to this tax decrease led to increases in wine regulation.

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