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Playing with Fire: Cigarettes, Taxes and Competition from the Internet

Austan Goolsbee () and Joel Slemrod ()

No 07-002, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: This paper documents the rise of the Internet as a source of cigarette tax competition for states in the United States. 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 a substantial increase in the sensitivity of taxable cigarette sales 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 recent cigarette tax increases substantially. Given the continuing growth of the Internet and of Internet cigarette merchants, the results imply serious problems for state revenue authorities.

Keywords: cigarette tax; cigarette sales; cigarette smuggling (search for similar items in EconPapers)
JEL-codes: H27 (search for similar items in EconPapers)
Date: 2007-09
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Related works:
Journal Article: Playing with Fire: Cigarettes, Taxes, and Competition from the Internet (2010) Downloads
Working Paper: Playing With Fire: Cigarettes, Taxes and Competition From the Internet (2009) Downloads
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