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Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue

Author

Listed:
  • Chiou Lesley

    (Occidental College)

  • Muehlegger Erich

    (Harvard University)

Abstract

Differences in excise taxes across jurisdictions create incentives for consumers to cross the border and to purchase in lower-tax jurisdictions. This paper introduces a discrete choice model to examine tax avoidance and state border crossing in the market for cigarettes. We exploit a rich dataset of consumer location choices and demographics to estimate a consumer's tradeoff between distance and price when choosing a location to maximize utility. Using the estimates from our location and demand models, we reconsider a recent public policy issue among states and simulate tax avoidance under alternative cigarette excise tax levels.

Suggested Citation

  • Chiou Lesley & Muehlegger Erich, 2008. "Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-41, December.
    • Handle: RePEc:bpj:bejeap:v:8:y:2008:i:1:n:48
    DOI: 10.2202/1935-1682.2027
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    References listed on IDEAS

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