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The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs in Chicago

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  • David Merriman

Abstract

The large tax differentials between Chicago and neighboring jurisdictions provide an incentive for cigarette tax avoidance. Data from a random sample of cigarette packs littered in Chicago reveals a startling degree of tax avoidance: three-quarters did not display a Chicago tax stamp. Also, the $2.68 difference between the tax in Chicago and surrounding counties decreases the probability of a local stamp by almost 60 percent, and a one mile increase in distance to the lower-tax state border increases the probability a pack of a local stamp by about one percent. These results are consistent with the predictions of economic theory. (JEL H25, H26, H71)

Suggested Citation

  • David Merriman, 2010. "The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs in Chicago," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 61-84, May.
  • Handle: RePEc:aea:aejpol:v:2:y:2010:i:2:p:61-84
    Note: DOI: 10.1257/pol.2.2.61
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    References listed on IDEAS

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    1. Joel Slemrod, 2007. "Cheating Ourselves: The Economics of Tax Evasion," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 25-48, Winter.
    2. Jha, Prabhat & Chaloupka, Frank (ed.), 2000. "Tobacco Control in Developing Countries," OUP Catalogue, Oxford University Press, number 9780192632463.
    3. Stehr, Mark, 2005. "Cigarette tax avoidance and evasion," Journal of Health Economics, Elsevier, vol. 24(2), pages 277-297, March.
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    Cited by:

    1. Kevin Callison & Robert Kaestner, 2014. "Do Higher Tobacco Taxes Reduce Adult Smoking? New Evidence Of The Effect Of Recent Cigarette Tax Increases On Adult Smoking," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 155-172, January.
    2. Hyunchul Kim & Dongwon Lee, 0. "Racial demographics and cigarette tax shifting: evidence from scanner data," Empirical Economics, Springer, vol. 0, pages 1-27.
    3. Agrawal, David R. & Trandel, Gregory A., 2019. "Dynamics of policy adoption with state dependence," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    4. David R. Agrawal, 2015. "The Tax Gradient: Spatial Aspects of Fiscal Competition," American Economic Journal: Economic Policy, American Economic Association, vol. 7(2), pages 1-29, May.
    5. Johansson, Per & Pekkarinen, Tuomas & Verho, Jouko, 2014. "Cross-border health and productivity effects of alcohol policies," Journal of Health Economics, Elsevier, vol. 36(C), pages 125-136.
    6. Justin S. White & Hana Ross, 2015. "Smokers' Strategic Responses to Sin Taxes: Evidence from Panel Data in Thailand," Health Economics, John Wiley & Sons, Ltd., vol. 24(2), pages 127-141, February.
    7. Agarwal, Sumit & Li, Keyang & Qin, Yu & Wu, Jing & Yan, Jubo, 2020. "Tax evasion, capital gains taxes, and the housing market," Journal of Public Economics, Elsevier, vol. 188(C).
    8. Brian Knight, 2013. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 200-229, November.
    9. Benjamin Hansen & Keaton Miller & Caroline Weber, 2017. "Federalism, Partial Prohibition, and Cross-Border Sales: Evidence from Recreational Marijuana," NBER Working Papers 23762, National Bureau of Economic Research, Inc.
    10. DeCicca, Philip & Kenkel, Donald & Liu, Feng, 2013. "Excise tax avoidance: The case of state cigarette taxes," Journal of Health Economics, Elsevier, vol. 32(6), pages 1130-1141.
    11. Berger, Melissa & Fellner-Röhling, Gerlinde & Sausgruber, Rupert & Traxler, Christian, 2016. "Higher taxes, more evasion? Evidence from border differentials in TV license fees," Journal of Public Economics, Elsevier, vol. 135(C), pages 74-86.
    12. Lesley Chiou & Erich Muehlegger, 2014. "Consumer Response to Cigarette Excise Tax Changes," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 621-650, September.
    13. David Agrawal, 2012. "Games within borders: are geographically differentiated taxes optimal?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(4), pages 574-597, August.
    14. Howard Chernick & David Merriman, 2013. "Using Littered Pack Data to Estimate Cigarette Tax Avoidance in Nyc," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 635-668, June.
    15. Rozema, Kyle & Ziebarth, Nicolas R., 2015. "Behavioral Responses to Taxation: Cigarette Taxes and Food Stamp Take-Up," IZA Discussion Papers 8907, Institute of Labor Economics (IZA).
    16. Michael Darden & Donna B. Gilleskie & Koleman Strumpf, 2015. "Smoking and Mortality: New Evidence from a Long Panel," Working Papers 1503, Tulane University, Department of Economics.
    17. Ghoddusi, Hamed & Rafizadeh, Nima & Rahmati, Mohammad H., 2018. "Price elasticity of gasoline smuggling: A semi-structural estimation approach," Energy Economics, Elsevier, vol. 71(C), pages 171-185.
    18. Shu Wang & David Merriman & Frank Chaloupka, 2019. "Relative Tax Rates, Proximity, and Cigarette Tax Noncompliance: Evidence from a National Sample of Littered Cigarette Packs," Public Finance Review, , vol. 47(2), pages 276-311, March.
    19. Christian Ben Lakhdar & Nicolas Gérard Vaillant & François-Charles Wolff, 2016. "Does smoke cross the border? Cigarette tax avoidance in France," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(9), pages 1073-1089, December.
    20. Friberg, Richard & Steen, Frode & Ulsaker, Simen A., 2018. "Hump-shaped cross-price effects and the extensive margin in cross-border shopping," Discussion Paper Series in Economics 20/2019, Norwegian School of Economics, Department of Economics, revised 23 Sep 2019.
    21. Hansen, Benjamin & Miller, Keaton & Weber, Caroline, 2020. "Federalism, partial prohibition, and cross-border sales: Evidence from recreational marijuana," Journal of Public Economics, Elsevier, vol. 187(C).
    22. Gallego, Juan M. & Llorente, Blanca & Maldonado, Norman & Otálvaro-Ramírez, Susana & Rodríguez-Lesmes, Paul, 2020. "Tobacco taxes and illicit cigarette trade in Colombia," Economics & Human Biology, Elsevier, vol. 39(C).
    23. James Alm & Mikhail I. Melnik, 2012. "Does Online Cross-border Shopping Affect State Use Tax Liabilities?," Working Papers 1206, Tulane University, Department of Economics.
    24. David Agrawal & William H. Hoyt, 2014. "State Tax Differentials, Cross-Border Commuting, and Commuting Times in Multi-State Metropolitan Areas," CESifo Working Paper Series 4852, CESifo.
    25. Muhammad Salar Khan & Paul N. Thompson & Victor J. Tremblay, 2020. "Marijuana tax incidence, stockpiling, and cross-border substitution," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 103-127, February.

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    More about this item

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue

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    1. The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs in Chicago (American Economic Journal: Economic Policy 2010) in ReplicationWiki

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