In this paper, we develop and estimate a model of commercial smuggling in which some, but not all, firms smuggle a portion of the cigarettes they sell. The model is used to examine the effects on interstate cigarette smuggling of the Contraband Cigarette Act and a change in the federal excise tax. We find that both policies have unintentional effects. While the Contraband Cigarette Act was imposed to reduce interstate smuggling, we find it had the opposite effect. In contrast, an increase in the federal tax is not intended to affect smuggling, but we find it increases the portion of cigarette sales that is commercially smuggled.
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
4763.
Length: Date of creation: Jun 1994 Date of revision: Publication status: published as National Tax Journal (November 1999). Handle: RePEc:nbr:nberwo:4763
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Find related papers by JEL classification: H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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