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

Chiou Lesley () and Erich Muehlegger
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Chiou Lesley: Occidental College

The B.E. Journal of Economic Analysis & Policy, 2008, vol. 8, issue 1, 1-41

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.

Date: 2008
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DOI: 10.2202/1935-1682.2027

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