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Faculty Research Working Paper Series
Erich J. Muehlegger
Associate Professor of Public Policy
Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues.
Chiou, Lesley, and Erich J. Muehlegger. "Crossing the Line: The Effect of Cross Border Cigarette Sales on State Excise Tax Revenues." HKS Faculty Research Working Paper Series RWP08-012, February 2008.
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.
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