Cigarette Demand in Canada and the Us-Canadian Cigarette Smuggling
Applied Economics Letters, vol. 11, no. 9, pp. 537-540
Posted: 6 Apr 2016
Date Written: 2004
Using annual data from Canadian provinces, this paper studies the effects of a drastic reduction in Canadian cigarette taxes in 1994 on cross-border smuggling. The results show that the policy was successful in that the border prices seem to not have had a statistically significant impact on cigarette sales. The own price elasticity of cigarette demand in Canada is estimated to be around -0.7. The elasticity is slightly lower when the border-price effects are taken into account and is larger than the corresponding estimates for the USA, implying that dollar-for-dollar there might be greater opportunities for reducing smoking in Canada through higher taxes than the USA.
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