Taxing Firearms Like Alcohol or Tobacco

Abstract

Despite recent calls for increased taxation of firearms, there has been little quantification of the impact that this would have on the market. Using tax receipts and recent estimates of supply and demand elasticities, this paper measures the size of the U.S. gun market at equilibrium, and the effects of current and higher tax rates. Baseline estimates indicate that market equilibrium is $14.11 billion and current taxes reduce sales by 14.5 percent. Taxing firearms at rates comparable to taxes on alcohol would cut sales to roughly three-quarters of equilibrium and increase tax revenue by 58 percent; raising gun taxes to the rate on tobacco would reduce sales to about half of the equilibrium level and double federal tax revenue.