Exports to Smuggle and Smuggling Technologies
AbstractOur analysis is motivated by cases of cigarette smuggling in Canada and in the UK. In the 1990s, domestic cigarettes were legally exported to be subsequently illegally imported. At first, smuggling was done by individual consumers who bought cigarettes abroad and brought them back through policed points of entry. This Mom and Pop smuggling was a mechanism to implement a second-degree price discrimination scheme by cigarette manufacturers. Regrets from committing tax evasion and labels on exported cigarettes packs permit vertical differentiation of illegal and legal cigarettes. Paradoxically, labeling measures can make illegal sales more resilient to tax reductions, and stricter border enforcement encourages a switch to a less benign smuggling technology exclusive to criminal organizations. High export taxes terminated export-to-smuggle schemes, but brought about a surge of counterfeit cigarettes. Because of a second-degree price discrimination scheme, the elimination of taxes need not suffice to eradicate smuggling. Copyright ï¿½ 2009 The Authors. Journal compilation ï¿½ 2009 Blackwell Publishing Ltd.
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Bibliographic InfoPaper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 32125.
Date of creation: 16 Nov 2010
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Publication status: Published in Review of International Economics, August 2009, vol. 17 no. 3, pp. 476-493
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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
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- Bonroy, O. & Constantatos, C., 2014. "On the economics of labels : how their introduction affects the functioning of markets and the welfare of all participants," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 2014-03, Grenoble Applied Economics Laboratory (GAEL).
- Bonroy, O. & Constantatos, C., 2013. "On the economics of labels : a review of the theoretical literature," Working Papers, Grenoble Applied Economics Laboratory (GAEL) 2013-01, Grenoble Applied Economics Laboratory (GAEL).
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