Looking at the taxation effect on cross-state smuggling using rational addiction models

Tina Swan, Bruce Qiang Sun and Frederick Floss

Journal of Economic Studies, 2019, vol. 46, issue 3, 652-670

Abstract: Purpose - The purpose of this paper is to show how the taxation effect on cross-state smuggling can be a valid instrumental variable for lagged and future consumption together with the local price series. Design/methodology/approach - On the same grounds, the authors raise the question using the rational-addiction model by noticing that the neighboring price differentials really capture the possible smuggling or bootlegging effects. Findings - Moreover, the authors look into the extended model to test the key condition that the expected future financial consequences will affect the current consumptions. Originality/value - This supports the rational-addiction model, which can be used to plan the taxation for the forward-looking consumptions.

Keywords: Taxation; Rational-addiction; Smuggling; Neighbouring price; G02; H21; H31; H71 (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:eme:jespps:jes-10-2017-0294

DOI: 10.1108/JES-10-2017-0294

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