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

See all articles by Lesley Chiou

Lesley Chiou

Occidental College - Department of Economics

Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS)

Date Written: 2008

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.

Keywords: state cigarette taxation, tax avoidance, cross border sales, discrete choice

Suggested Citation

Chiou, Lesley and Muehlegger, Erich, Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenues (2008). The B.E. Journal of Economic Analysis & Policy (Contributions), Vol. 8, No. 48, 2008, Available at SSRN: https://ssrn.com/abstract=1312404

Lesley Chiou (Contact Author)

Occidental College - Department of Economics ( email )

1600 Campus Road
Los Angeles, CA 90041
United States

HOME PAGE: http://www.faculty.oxy.edu/lchiou

Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-7735 (Phone)
617-496-6886 (Fax)

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