Publication Abstract

Authors: Lovenheim MF

Title: How far to the border?: the extent and impact of cross-border casual cigarette smuggling

Journal: 61(1):7-34

Date: 2008 Mar

Abstract: This paper uses data on cigarette consumption in the Current Population Survey Tobacco Supplements to estimate cigarette demand models that incorporate the decision of whether to smuggle cigarettes across a lower-price border. I find demand elasticities with respect to the home state price are indistinguishable from zero on average and vary signifi cantly with the distance individuals live to a lower-price border. However, when smuggling incentives are eradicated, the price elasticity is negative but still inelastic. I also estimate between 13 and 25 percent of consumers purchase cigarettes in border localities. The central implication of this study is cross-border smuggling confounds many of the potential health and revenue gains from cigarette taxation.