Playing with Fire: Cigarettes, Taxes, and Competition from the Internet

Austan Goolsbee, Michael Lovenheim and Joel Slemrod

American Economic Journal: Economic Policy, 2010, vol. 2, issue 1, 131-54

Abstract: This paper documents the rise of the Internet as a source of state tax-free cigarettes and its impact on taxed sales elasticities. Using data on cigarette tax rates, taxable cigarette sales and individual smoking rates by state from 1980 to 2005 merged with data on Internet penetration, this paper documents that there has been a substantial increase in the sensitivity of taxable cigarette sales to state tax rates that is correlated with the rise of Internet usage within states. The estimates imply that the increased sensitivity from cigarette smuggling over the Internet has lessened the revenue generating potential of cigarette tax increases significantly, although states are still far from the revenue-maximizing tax rates. (JEL D12, H25, H31, H71, L66)

JEL-codes: D12 H25 H31 H71 L66 (search for similar items in EconPapers)
Date: 2010
Note: DOI: 10.1257/pol.2.1.131
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (48)

Downloads: (external link)
http://www.aeaweb.org/articles.php?doi=10.1257/pol.2.1.131 (application/pdf)
http://www.aeaweb.org/aej/pol/data/2007-0030_data.zip (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Playing With Fire: Cigarettes, Taxes and Competition From the Internet (2009)
Working Paper: Playing with Fire: Cigarettes, Taxes and Competition from the Internet (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejpol:v:2:y:2010:i:1:p:131-54

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

Access Statistics for this article

American Economic Journal: Economic Policy is currently edited by Matthew Shapiro

More articles in American Economic Journal: Economic Policy from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().