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Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue

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Author Info

  • Chiou Lesley

    ()
    (Occidental College)

  • Muehlegger Erich

    ()
    (Harvard University)

Abstract

Differences in excise taxes across jurisdictions create incentives for consumers to cross the border and to purchase in lower-tax jurisdictions. This paper introduces a discrete choice model to examine tax avoidance and state border crossing in the market for cigarettes. We exploit a rich dataset of consumer location choices and demographics to estimate a consumer's tradeoff between distance and price when choosing a location to maximize utility. Using the estimates from our location and demand models, we reconsider a recent public policy issue among states and simulate tax avoidance under alternative cigarette excise tax levels.

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File URL: http://www.degruyter.com/view/j/bejeap.2008.8.1/bejeap.2008.8.1.2027/bejeap.2008.8.1.2027.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 8 (2008)
Issue (Month): 1 (December)
Pages: 1-41

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Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:48

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Cited by:
  1. Chiou, Lesley & Muehlegger, Erich J., 2010. "Consumer Response to Cigarette Excise Tax Changes," Scholarly Articles 4448875, Harvard Kennedy School of Government.
  2. Timothy K.M. Beatty & Erling Røed Larsen & Dag Einar Sommervoll, 2007. "Driven to Drink. Sin Taxes Near a Border," Discussion Papers 507, Research Department of Statistics Norway.
  3. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2014. "Cross-border commuting and consuming: An empirical investigation," BCL working papers 89, Central Bank of Luxembourg.
  4. Philip DeCicca & Donald S. Kenkel & Feng Liu, 2010. "Excise Tax Avoidance: The Case of State Cigarette Taxes," NBER Working Papers 15941, National Bureau of Economic Research, Inc.

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