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Retail bottle pricing at the border: evidence of cross-border shopping, fraudulent redemptions, and use tax evasion

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  • Ben J Niu

Abstract

This paper examines the pattern of retail prices for deposit eligible goods near Michigan’s borders. Michigan’s unique bottle redemption system and lower sales tax generate incentives for various potentially illegal household responses. Such incentives and behavior should be capitalized in the prices of affected goods. I empirically quantify the spatial price effects and find patterns consistent with theoretical predictions. Michigan’s border prices are higher (lower) for goods with higher (lower) per unit costs by up to 38%. Price-distance trends reflect the waning of these effects away from the border.

Suggested Citation

  • Ben J Niu, 2018. "Retail bottle pricing at the border: evidence of cross-border shopping, fraudulent redemptions, and use tax evasion," Journal of Economic Geography, Oxford University Press, vol. 18(6), pages 1253-1283.
    • Handle: RePEc:oup:jecgeo:v:18:y:2018:i:6:p:1253-1283.
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    File URL: http://hdl.handle.net/10.1093/jeg/lbx025
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    More about this item

    Keywords

    Bottle deposits; cross-border shopping; tax evasion; spatial pricing;
    All these keywords.

    JEL classification:

    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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