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Driven to drink: Sin taxes near a border

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  • Beatty, Timothy K.M.
  • Larsen, Erling Røed
  • Sommervoll, Dag Einar

Abstract

This paper investigates household purchasing behavior in response to differing alcohol and tobacco taxes near an international border. Our study suggests that large tax differentials near borders induce economically important tax avoidance behavior, which may limit a government's ability to raise revenue and potentially undermine important health and social policy goals. We match novel supermarket scanner and consumer expenditure data to measure the size and scope of the effect for households and stores. We find that stores near/far from the international border have statistically significantly lower/higher sales of beer and tobacco than comparable stores far/near the border. Moreover, we find that households near the border report higher consumption of these same goods. This is consistent with households facing lower prices. Finally, we find measures of externalities associated with these goods are higher near the border.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 28 (2009)
Issue (Month): 6 (December)
Pages: 1175-1184

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Handle: RePEc:eee:jhecon:v:28:y:2009:i:6:p:1175-1184

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Web page: http://www.elsevier.com/locate/inca/505560

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Keywords: Alcohol consumption Tobacco consumption Border trade Taxation;

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References

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  1. Ian Crawford & Sarah Tanner, 1999. "Alcohol taxes, tax revenues and the Single European Market," Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 287-304, September.
  2. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
  3. Lovenheim, Michael F., 2008. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," National Tax Journal, National Tax Association, vol. 61(1), pages 7-33, March.
  4. Chiou Lesley & Muehlegger Erich, 2008. "Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-41, December.
  5. Alberto Abadie & David Drukker & Jane Leber Herr & Guido W. Imbens, 2004. "Implementing matching estimators for average treatment effects in Stata," Stata Journal, StataCorp LP, vol. 4(3), pages 290-311, September.
  6. Friberg, Richard & Asplund, Marcus & Wilander, Fredrik, 2005. "Demand and Distance: Evidence on Cross-Border Shopping," Working Paper Series in Economics and Finance 587, Stockholm School of Economics.
  7. Alberto Abadie & Guido W. Imbens, 2002. "Simple and Bias-Corrected Matching Estimators for Average Treatment Effects," NBER Technical Working Papers 0283, National Bureau of Economic Research, Inc.
  8. Stehr, Mark, 2005. "Cigarette tax avoidance and evasion," Journal of Health Economics, Elsevier, vol. 24(2), pages 277-297, March.
  9. Jérôme Adda & Francesca Cornaglia, 2006. "Taxes, Cigarette Consumption, and Smoking Intensity," American Economic Review, American Economic Association, vol. 96(4), pages 1013-1028, September.
  10. Jonathan Gruber & Anindya Sen & Mark Stabile, 2002. "Estimating Price Elasticities When there is Smuggling: The Sensitivity of Smoking to Price in Canada," NBER Working Papers 8962, National Bureau of Economic Research, Inc.
  11. Ruppert,David & Wand,M. P. & Carroll,R. J., 2003. "Semiparametric Regression," Cambridge Books, Cambridge University Press, number 9780521785167, April.
  12. Phelps, Charles E., 1988. "Death and taxes : An opportunity for substitution," Journal of Health Economics, Elsevier, vol. 7(1), pages 1-24, March.
  13. Ruppert,David & Wand,M. P. & Carroll,R. J., 2003. "Semiparametric Regression," Cambridge Books, Cambridge University Press, number 9780521780506, April.
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Cited by:
  1. PESTIEAU, Pierre & PONTHIERE, Grégory, . "Myopia, regrets, and risky behaviors," CORE Discussion Papers RP -2452, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Manudeep Bhuller & Tarjei Havnes & Edwin Leuven & Magne Mogstad, 2013. "Broadband Internet: An Information Superhighway to Sex Crime?," Review of Economic Studies, Oxford University Press, vol. 80(4), pages 1237-1266.
  3. Geys, Benny & Osterloh, Steffen, 2012. "Borders as boundaries to fiscal policy interactions? An empirical analysis of politicians' opinions on rivals in the competition for firms," Discussion Papers, Research Professorship & Project "The Future of Fiscal Federalism" SP II 2012-113, Social Science Research Center Berlin (WZB).

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