Tobacco Tariffs in the Colonial Chesapeake

From 1616 through the Revolutionary War (1775-1783), colonial governors and the English Crown levied tariffs on tobacco produced and exported from the colonies of Maryland and Virginia. The colonies imposed export tariffs, and England imposed import tariffs. Tariffs provided revenue for colonial administration and defense and, in its peak year, represented about 7 percent of English tax revenue. In this paper I analyze how export and import tariffs affected the price and volume of tobacco trade between colonial Maryland and Virginia and England, as well as the distribution of the burden of those tariffs. Although the point estimate suggests elastic demand, it is imprecisely estimated. Elasticity-based incidence estimates indicate that approximately 89 percent of the tariff burden was borne by consumers in Europe, allowing the Crown to raise revenue without significantly discouraging colonial production or migration. These estimates illuminate the fiscal constraints faced by the British Crown and provide context on one of the financial incentives for Britain's decision to sustain control of the colonies through the Revolutionary War.