Playing With Fire: Cigarettes, Taxes and Competition From the Internet

Austan Goolsbee, Michael Lovenheim and Joel Slemrod

No 15612, NBER Working Papers from National Bureau of Economic Research, Inc

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, the 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-codes: H2 (search for similar items in EconPapers)
Date: 2009-12
Note: PE
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Citations: View citations in EconPapers (1)

Published as Austan Goolsbee & Michael F. Lovenheim & Joel Slemrod, 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 131-54, February.

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Related works:
Journal Article: Playing with Fire: Cigarettes, Taxes, and Competition from the Internet (2010)
Working Paper: Playing with Fire: Cigarettes, Taxes and Competition from the Internet (2007)
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