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Does Cigarette Smuggling Prop Up Smoking Rates?

James Bishop ()

American Journal of Health Economics, 2018, vol. 4, issue 1, 80-104

Abstract: A state cigarette tax increase may deter some residents from smoking, but other residents may avoid the higher tax by purchasing cigarettes from another state. Using US health survey microdata from 1999 to 2012, this paper measures how border-crossing opportunities affect the smoking deterrence achieved by a cigarette tax increase. I estimate by two-way fixed-effects regression that a $1 state cigarette tax increase decreases the smoking rate by an additional 0.64 percentage points for each dollar of cigarette tax in the nearest lower-tax state. However, each successive $1 tax increase decreases the smoking rate by 0.43 fewer percentage points than the last. I show that the signs of these terms can be theoretically derived without parametric assumptions. I observe that, as both home and nearest lower taxes rose from 1999 to 2012, the mean effectiveness of a home state tax increase remained roughly constant over the period. My results imply that the lowest-tax states are those with the greatest power to reduce the national smoking rate.

Keywords: cigarette taxes; smoking; tax avoidance; border crossing (search for similar items in EconPapers)
JEL-codes: H26 H73 I12 I18 (search for similar items in EconPapers)
Date: 2018
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