A BEJEAP Contributions article.

Abstract

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.

Submitted: May 22, 2008 · Accepted: October 15, 2008 · Published: December 6, 2008

Recommended Citation

Chiou, Lesley and Muehlegger, Erich (2008) "Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue," The B.E. Journal of Economic Analysis & Policy: Vol. 8 : Iss. 1 (Contributions), Article 48.
DOI: 10.2202/1935-1682.2027
Available at: http://www.bepress.com/bejeap/vol8/iss1/art48