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Driven to Drink. Sin Taxes Near a Border

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Author Info
Timothy K.M. Beatty, Erling Røed Larsen and Dag Einar Sommervoll () (Statistics Norway)
Abstract

This paper investigates household purchasing behavior in response to differing alcohol and tobacco taxes near an international border. Our study suggests that large tax differentials near borders induce economically important tax avoidance behavior that may limit a government’s ability to raise revenue and potentially undermine the pursuit of important health and social policy goals. We match novel supermarket scanner and consumer expenditure data to measure the size and scope of the effect for households and stores. We find that stores near/far from the international border have statistically significantly lower/higher sales of beer and tobacco than comparable stores far/near the border. Moreover, we find that households near the border report higher consumption of these same goods. This is consistent with households facing lower prices. Finally, we find measures of externalities associated with the consumption of alcohol and tobacco are higher near the border.

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Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 507.

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Date of creation: Jun 2007
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Handle: RePEc:ssb:dispap:507

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Related research
Keywords: Alcohol Consumption; Tobacco Consumption; Border Trade; Taxation;

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Find related papers by JEL classification:
C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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  1. Gruber, Jonathan & Sen, Anindya & Stabile, Mark, 2003. "Estimating price elasticities when there is smuggling: the sensitivity of smoking to price in Canada," Journal of Health Economics, Elsevier, vol. 22(5), pages 821-842, September. [Downloadable!] (restricted)
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  2. Asplund, Marcus & Friberg, Richard & Wilander, Fredrik, 2007. "Demand and distance: Evidence on cross-border shopping," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 141-157, February. [Downloadable!] (restricted)
    Other versions:
  3. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
    • Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier. [Downloadable!] (restricted)
  4. Jérôme Adda & Francesca Cornaglia, 2005. "Taxes, Cigarette Consumption and Smoking Intensity," IZA Discussion Papers 1849, Institute for the Study of Labor (IZA). [Downloadable!]
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  5. Phelps, Charles E., 1988. "Death and taxes : An opportunity for substitution," Journal of Health Economics, Elsevier, vol. 7(1), pages 1-24, March. [Downloadable!] (restricted)
  6. Alberto Abadie & David Drukker & Jane Leber Herr & Guido W. Imbens, 2004. "Implementing matching estimators for average treatment effects in Stata," Stata Journal, StataCorp LP, vol. 4(3), pages 290-311, September. [Downloadable!]
  7. Ian Crawford & Sarah Tanner, 1999. "Alcohol taxes, tax revenues and the Single European Market," Fiscal Studies, Institute for Fiscal Studies, vol. 20(3), pages 287-304, September. [Downloadable!]
  8. Alberto Abadie & Guido W. Imbens, 2002. "Simple and Bias-Corrected Matching Estimators for Average Treatment Effects," NBER Technical Working Papers 0283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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