Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenues
The B.E. Journal of Economic Analysis & Policy (Contributions), Vol. 8, No. 48, 2008
Posted: 7 Dec 2008
Date Written: 2008
Differences in excise taxes across jurisdictions create incentives for consumers to cross the border and to 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.
Keywords: state cigarette taxation, tax avoidance, cross border sales, discrete choice
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