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Demand and distance: Evidence on cross-border shopping

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  • Asplund, Marcus
  • Friberg, Richard
  • Wilander, Fredrik

Abstract

While many studies have documented deviations from the Law of One Price in international settings, evidence is scarce on the extent to which consumers take advantage of price differentials and engage in cross border shopping. We use data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location’s distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometres inland reduces it to 0.2 (0.1). Given that cross-country price differences for alcohol and other products are often caused by taxes, our evidence has implications for the debate on tax competition/harmonization.
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  • 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.
  • Handle: RePEc:eee:pubeco:v:91:y:2007:i:1-2:p:141-157
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    More about this item

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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