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Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Federal Intervention

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  • Thursby, Jerry G.
  • Thursby, Marie C.

Abstract

We develop a model of commercial smuggling in which some firms smuggle a portion of the cigarettes they sell. The model is used to estimate the extent of smuggling across state lines and the effects of federal efforts to control smuggling via the Contraband Cigarette Act (CCA). We find that commercial smuggling accounted for three to four percent of all cigarettes sold during the 1970s, a decade of high excise tax differentials. Further, the CCA had the unintentional effect of increasing commercial smuggling, a result consistent with a change in enforcement and modes of smuggling reported subsequent to the Act.

Suggested Citation

  • Thursby, Jerry G. & Thursby, Marie C., 2000. "Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Federal Intervention," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(1), pages 59-78, March.
    • Handle: RePEc:ntj:journl:v:53:y:2000:i:1:p:59-78
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    References listed on IDEAS

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    1. Badi H. Baltagi & Rajeev K. Goel, 1987. "Quasi-Experimental Price Elasticities of Cigarette Demand and the Bootlegging Effect," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 69(4), pages 750-754.
    2. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
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    2. Lovenheim, Michael F., 2008. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 7-33, March.
    3. 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.
    4. Austan Goolsbee & Michael F. Lovenheim & Joel Slemrod, 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 131-154, February.
    5. Alejandro Esteller-Moré & Leonzio Rizzo, 2014. "US excise tax horizontal interdependence: yardstick versus tax competition," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(3), pages 711-737, May.
    6. 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.
    7. 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.
    8. Thomas Y. Mathä & Alessandro Porpiglia & Michael Ziegelmeyer, 2017. "Cross-border commuting and consuming: an empirical investigation," Applied Economics, Taylor & Francis Journals, vol. 49(20), pages 2011-2026, April.
    9. Ian Irvine & William Sims, 2014. "The simple analytics of tobacco taxation with illegal supply," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 47(4), pages 1153-1172, November.
    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. Devereux, M.P. & Lockwood, B. & Redoano, M., 2007. "Horizontal and vertical indirect tax competition: Theory and some evidence from the USA," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 451-479, April.
    12. Nicholas Apergis & Rajeev Goel & James Payne, 2014. "Dynamics of U.S. State Cigarette Consumption: Evidence from Panel Error Correction Modeling," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 42(1), pages 3-20, March.
    13. Lovenheim, Michael F. & Slemrod, Joel, 2010. "The fatal toll of driving to drink: The effect of minimum legal drinking age evasion on traffic fatalities," Journal of Health Economics, Elsevier, vol. 29(1), pages 62-77, January.
    14. Chiou, Lesley & Muehlegger, Erich, 2008. "Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues," Working Paper Series rwp08-012, Harvard University, John F. Kennedy School of Government.
    15. Michael Keen, 2002. "Some International Issues in Commodity Taxation," IMF Working Papers 02/124, International Monetary Fund.
    16. Leonzio Rizzo & Alejandro Esteller - Moré, 2011. "US Excise Tax Horizontal Interdependence: Yardstick vs. Tax Competition," Working Papers 201116, University of Ferrara, Department of Economics.
    17. Chin W. Yang & Hui Wen Cheng & Ching Wen Chi & Bwo-Nung Huang, 2016. "A Tax Can Increase Profit of a Monopolist or a Monopoly-like Firm: A Fiction or Distinct Possibility?," Hacienda Pública Española / Review of Public Economics, IEF, vol. 216(1), pages 39-60, March.
    18. James E. Prieger & Jonathan Kulick, 2018. "Cigarette Taxes And Illicit Trade In Europe," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1706-1723, July.
    19. repec:mea:meawpa:14284 is not listed on IDEAS
    20. Goel, Rajeev K. & Payne, James E. & Saunoris, James W., 2016. "Spillovers from the beer market to U.S. cigarette demand," Economic Modelling, Elsevier, vol. 55(C), pages 292-297.
    21. Stehr, Mark, 2005. "Cigarette tax avoidance and evasion," Journal of Health Economics, Elsevier, vol. 24(2), pages 277-297, March.
    22. Charles A.M. De Bartolome, 2007. "Tax competition and the creation of redundant products," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(4), pages 1213-1236, November.
    23. Leonzio Rizzo, 2006. "Le inefficienze della competizione fiscale: una rassegna dei principali modelli teorici," Economia politica, Società editrice il Mulino, issue 1, pages 89-120.

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