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

  • Marie C. Thursby
  • Jerry G. Thursby

In this paper, we develop and estimate a model of commercial smuggling in which some, but not all, firms smuggle a portion of the cigarettes they sell. The model is used to examine the effects on interstate cigarette smuggling of the Contraband Cigarette Act and a change in the federal excise tax. We find that both policies have unintentional effects. While the Contraband Cigarette Act was imposed to reduce interstate smuggling, we find it had the opposite effect. In contrast, an increase in the federal tax is not intended to affect smuggling, but we find it increases the portion of cigarette sales that is commercially smuggled.

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File URL: http://www.nber.org/papers/w4763.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4763.

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Date of creation: Jun 1994
Date of revision:
Publication status: published as National Tax Journal (November 1999).
Handle: RePEc:nbr:nberwo:4763
Note: ITI
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Thursby, Marie & Jensen, Richard & Thursby, Jerry, 1991. "Smuggling, Camouflaging, and Market Structure," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 789-814, August.
  2. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  3. Eugene M. Lewit & Douglas Coate, 1981. "The Potential for Using Excise Taxes to Reduce Smoking," NBER Working Papers 0764, National Bureau of Economic Research, Inc.
  4. Baltagi, Badi H & Levin, Dan, 1986. "Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation and Advertising Reconsidered," The Review of Economics and Statistics, MIT Press, vol. 68(1), pages 148-55, February.
  5. Breusch, T S & Pagan, A R, 1979. "A Simple Test for Heteroscedasticity and Random Coefficient Variation," Econometrica, Econometric Society, vol. 47(5), pages 1287-94, September.
  6. Wasserman, Jeffrey & Manning, Willard G. & Newhouse, Joseph P. & Winkler, John D., 1991. "The effects of excise taxes and regulations on cigarette smoking," Journal of Health Economics, Elsevier, vol. 10(1), pages 43-64, May.
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