Are Tax-Free Wine Prices Attractive for Consumers? Empirical Evidence from Norway

Abstract

Wine is highly taxed in Norway, but there is a Norwegian island, Svalbard, with no taxes at all. For the purpose of comparing wine prices, with a focus on tax-free prices, we have collected a data set with identical wines from the two parts of Norway. At the retail level wines are only sold at state monopoly shops in mainland Norway and information from these allows a calculation of the before-tax prices in the country. The prices at the tax-free shop on Svalbard are significantly higher than the pre-tax prices and thus some monopoly price setting is taking place in the tax-free shop. Like in the present case duty-free shops often attract consumers with ‘tax-free’ prices, but some surplus is still extracted from the customers due to a monopoly behavior.