Retail bottle pricing at the border: evidence of cross-border shopping, fraudulent redemptions, and use tax evasion

Ben J Niu

Journal of Economic Geography, 2018, vol. 18, issue 6, 1253-1283

Abstract: This paper examines the pattern of retail prices for deposit eligible goods near Michigan’s borders. Michigan’s unique bottle redemption system and lower sales tax generate incentives for various potentially illegal household responses. Such incentives and behavior should be capitalized in the prices of affected goods. I empirically quantify the spatial price effects and find patterns consistent with theoretical predictions. Michigan’s border prices are higher (lower) for goods with higher (lower) per unit costs by up to 38%. Price-distance trends reflect the waning of these effects away from the border.

Keywords: Bottle deposits; cross-border shopping; tax evasion; spatial pricing (search for similar items in EconPapers)
JEL-codes: H26 H71 R12 (search for similar items in EconPapers)
Date: 2018
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