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Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Government Intervention

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  • Marie C. Thursby
  • Jerry G. Thursby

Abstract

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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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4763.

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Date of creation: Jun 1994
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Publication status: published as National Tax Journal (November 1999).
Handle: RePEc:nbr:nberwo:4763

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  1. Richard A. Jensen & Jerry Thursby & Marie Thursby, 1988. "Smuggling, Camouflaging, and Market Structure," NBER Working Papers 2630, National Bureau of Economic Research, Inc.
  2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, Econometric Society, vol. 56(6), pages 1371-95, November.
  3. Wasserman, Jeffrey & Manning, Willard G. & Newhouse, Joseph P. & Winkler, John D., 1991. "The effects of excise taxes and regulations on cigarette smoking," Journal of Health Economics, Elsevier, Elsevier, vol. 10(1), pages 43-64, May.
  4. Eugene M. Lewit & Douglas Coate, 1981. "The Potential for Using Excise Taxes to Reduce Smoking," NBER Working Papers 0764, National Bureau of Economic Research, Inc.
  5. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, Econometric Society, vol. 47(5), pages 1287-94, September.
  6. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
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Cited by:
  1. Rizzo, Leonzio, 2005. "Interaction between Vertical and Horizontal tax Competition: Theory and Evidence," MPRA Paper 5334, University Library of Munich, Germany.
  2. Rizzo, Leonzio, 2006. "Local government responsiveness to federal transfers: theory and evidence," MPRA Paper 5373, University Library of Munich, Germany.
  3. Devereux, Michael P & Lockwood, Ben & Redoano, Michela, 2004. "Horizontal and Vertical Indirect Tax Competition: Theory and Some Evidence From the USA," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4470, C.E.P.R. Discussion Papers.
  4. Michael F. Lovenheim, 2007. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," Discussion Papers, Stanford Institute for Economic Policy Research 06-040, Stanford Institute for Economic Policy Research, revised Oct 2009.
  5. Leonzio Rizzo & Alejandro Esteller - Moré, 2011. "US Excise Tax Horizontal Interdependence: Yardstick vs. Tax Competition," Working Papers 201116, University of Ferrara, Department of Economics.
  6. Chiou, Lesley & Muehlegger, Erich, 2008. "Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues," Working Paper Series, Harvard University, John F. Kennedy School of Government rwp08-012, Harvard University, John F. Kennedy School of Government.
  7. 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.
  8. Austan Goolsbee & Joel Slemrod, 2007. "Playing with Fire: Cigarettes, Taxes and Competition from the Internet," Discussion Papers, Stanford Institute for Economic Policy Research 07-002, Stanford Institute for Economic Policy Research.

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