Trade, Taxes, and Terroir
Abstract: This study discusses how the growth of the modern state promoted greater trade and a more integrated market at the national level. It uses data on wine production in France, whose consumers are still known to prefer local goods produced by small and traditional producers, and focuses on a policy change which lowered wine tax rates throughout the country. It is found that the existence of high internal taxes protected local producers and delayed the integration of the French market. Once these taxes were removed, French consumers abandoned their local producers for other winemakers who produced cheaper wine.