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Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues

Author

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  • Chiou, Lesley

    (Occidental College)

  • Muehlegger, Erich

    (Harvard U)

Abstract

Differences in excise tax rates across jurisdictions create incentives for consumers to cross the border and 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: 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.
  • Handle: RePEc:ecl:harjfk:rwp08-012
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    References listed on IDEAS

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    5. Marie C. Thursby & Jerry G. Thursby, 1994. "Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Government Intervention," NBER Working Papers 4763, National Bureau of Economic Research, Inc.
    6. Ayda A. Yurekli & Ping Zhang, 2000. "The impact of clean indoor-air laws and cigarette smuggling on demand for cigarettes: an empirical model," Health Economics, John Wiley & Sons, Ltd., vol. 9(2), pages 159-170.
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    9. 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.
    10. Keeler, Theodore E. & Hu, Teh-wei & Barnett, Paul G. & Manning, Willard G. & Sung, Hai-Yen, 1996. "Do cigarette producers price-discriminate by state? An empirical analysis of local cigarette pricing and taxation," Journal of Health Economics, Elsevier, vol. 15(4), pages 499-512, August.
    11. Stehr, Mark, 2005. "Cigarette tax avoidance and evasion," Journal of Health Economics, Elsevier, vol. 24(2), pages 277-297, March.
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    16. Thursby, Jerry G. & Thursby, Marie C., 2000. "Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Federal Intervention," National Tax Journal, National Tax Association, vol. 53(n. 1), pages 59-78, March.
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    Cited by:

    1. Prieger James E. & Kulick Jonathan, 2015. "Violence in Illicit Markets: Unintended Consequences and the Search for Paradoxical Effects of Enforcement," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 15(3), pages 1263-1295, July.
    2. repec:eee:eneeco:v:71:y:2018:i:c:p:171-185 is not listed on IDEAS
    3. repec:eee:irlaec:v:50:y:2017:i:c:p:15-24 is not listed on IDEAS
    4. Leal, Andrés & López-Laborda, Julio & Rodrigo, Fernando, 2009. "Prices, taxes and automotive fuel cross-border shopping," Energy Economics, Elsevier, vol. 31(2), pages 225-234.
    5. repec:kap:iaecre:v:16:y:2010:i:2:p:135-148 is not listed on IDEAS

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