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Licensed Unlicensed Requires Authentication Published by De Gruyter December 6, 2008

Crossing the Line: Direct Estimation of Cross-Border Cigarette Sales and the Effect on Tax Revenue

  • Lesley Chiou and Erich Muehlegger

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.

Published Online: 2008-12-6

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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