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Does Cigarette Smuggling Prop Up Smoking Rates?

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  • James M. Bishop

    (Institute for Defense Analyses Author email: bishop@ida.org)

Abstract

A state cigarette tax increase may deter some residents from smoking, but other residents may avoid the higher tax by purchasing cigarettes from another state. Using US health survey microdata from 1999 to 2012, this paper measures how border-crossing opportunities affect the smoking deterrence achieved by a cigarette tax increase. I estimate by two-way fixed-effects regression that a $1 state cigarette tax increase decreases the smoking rate by an additional 0.64 percentage points for each dollar of cigarette tax in the nearest lower-tax state. However, each successive $1 tax increase decreases the smoking rate by 0.43 fewer percentage points than the last. I show that the signs of these terms can be theoretically derived without parametric assumptions. I observe that, as both home and nearest lower taxes rose from 1999 to 2012, the mean effectiveness of a home state tax increase remained roughly constant over the period. My results imply that the lowest-tax states are those with the greatest power to reduce the national smoking rate.

Suggested Citation

  • James M. Bishop, 2018. "Does Cigarette Smuggling Prop Up Smoking Rates?," American Journal of Health Economics, MIT Press, vol. 4(1), pages 80-104, Winter.
    • Handle: RePEc:tpr:amjhec:v:4:y:2018:i:1:p:80-104
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    References listed on IDEAS

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    Cited by:

    1. Rajeev K. Goel & James W. Saunoris, 2019. "Cigarette smuggling: using the shadow economy or creating its own?," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(3), pages 582-593, July.
    2. Michael F. Pesko & Charles J. Courtemanche & Johanna Catherine Maclean, 2019. "The Effects of Traditional Cigarette and E-Cigarette Taxes on Adult Tobacco Product Use," NBER Working Papers 26017, National Bureau of Economic Research, Inc.
    3. Vinish Shrestha, 2022. "Revisiting the Effects of Cigarette Taxes on Smoking Outcomes," Working Papers 2022-02, Towson University, Department of Economics, revised Oct 2022.
    4. Michael F. Pesko & Charles J. Courtemanche & Johanna Catherine Maclean, 2020. "The effects of traditional cigarette and e-cigarette tax rates on adult tobacco product use," Journal of Risk and Uncertainty, Springer, vol. 60(3), pages 229-258, June.

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    More about this item

    Keywords

    cigarette taxes; smoking; tax avoidance; border crossing;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H73 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Interjurisdictional Differentials and Their Effects
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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