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Driven to drink: Sin taxes near a border

  • Beatty, Timothy K.M.
  • Larsen, Erling Røed
  • Sommervoll, Dag Einar

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, which may limit a government's ability to raise revenue and potentially undermine 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 these goods are higher near the border.

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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 28 (2009)
Issue (Month): 6 (December)
Pages: 1175-1184

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Handle: RePEc:eee:jhecon:v:28:y:2009:i:6:p:1175-1184
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  1. Stehr, Mark, 2005. "Cigarette tax avoidance and evasion," Journal of Health Economics, Elsevier, vol. 24(2), pages 277-297, March.
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  3. repec:cup:cbooks:9780521780506 is not listed on IDEAS
  4. 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.
  5. 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.
  6. Michael F. Lovenheim, 2007. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," Discussion Papers 06-040, Stanford Institute for Economic Policy Research, revised Oct 2009.
  7. 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.
  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.
  9. Jérôme Adda & Francesca Cornaglia, 2006. "Taxes, Cigarette Consumption, and Smoking Intensity," American Economic Review, American Economic Association, vol. 96(4), pages 1013-1028, September.
  10. 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.
  11. 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.
  12. Phelps, Charles E., 1988. "Death and taxes : An opportunity for substitution," Journal of Health Economics, Elsevier, vol. 7(1), pages 1-24, March.
  13. 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.
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