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Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues

Lesley Chiou and Erich Muehlegger
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Lesley Chiou: Occidental College

Working Paper Series from Harvard University, John F. Kennedy School of Government

Abstract: Differences in excise tax rates across jurisdictions create incentives for consumers to cross the border and 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
New Economics Papers: this item is included in nep-dcm, nep-mkt and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:harjfk:rwp08-012

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