Do consumers travel across state lines to avoid taxes?

cigarette-869762-mExcise tax on cigarettes can vary greatly from state to state. According to the National Conference of State Legislature, state tax amounts in 2011-2012 ranged from the lowest in Missouri at 17 cents per pack and the highest in New York at $4.35 per pack. How does this affect the means by which smokers purchase cigarettes in high tax states? How much tax revenue is lost when smokers seek out alternative purchasing options? Authors Andrew Nicholson, Tracy M. Turner and Eduardo Alvarado discuss in their article “Cigarette Taxes and Cross-border Revenue Effects: Evidence Using Retail Data” from Public Finance Review.

From the article:

This article adds to a growing literature that documents tax avoidance behavior and the implied state tax revenue leakages arising from differential taxation of cigarettes across US states. The ability of consumers to purchase at a lower-tax PFR_72ppiRGB_powerpointprice than that in one’s home state, either through border crossing or through Internet purchases, suggests that requiring Internet cigarette purchases to be subject to taxation and creating interstate coordination of excise tax rates could yield significant gains in the form of higher revenues as well as diminish cigarette consumption. Future research might examine the potential for these gains and the extent to which they are positive even for the states with relatively low excise tax rates, as these states’ retailers also face growing competition from tax-free Internet sales.

Click here to read “Cigarette Taxes and Cross-border Revenue Effects: Evidence Using Retail Data” from Public Finance Review. Want to know about all the latest from Public Finance Review? Click here to sign up for e-alerts!

This entry was posted in Decision making, Economics, Finance, Income, Motivation, Relationships, Trade, Travel and tagged , , , by Cynthia Nalevanko, Senior Editor, SAGE Publishing. Bookmark the permalink.

About Cynthia Nalevanko, Senior Editor, SAGE Publishing

Founded in 1965, SAGE is the world’s leading independent academic and professional publisher. Known for our commitment to quality and innovation, SAGE has helped inform and educate a global community of scholars, practitioners, researchers, and students across a broad range of subject areas. With over 1500 employees globally from principal offices in Los Angeles, London, New Delhi, Singapore, Washington DC, and Melburne, our publishing program includes more than 1000 journals and over 900 books, reference works and databases a year in business, humanities, social sciences, science, technology and medicine. Believing passionately that engaged scholarship lies at the heart of any healthy society and that education is intrinsically valuable, SAGE aims to be the world’s leading independent academic and professional publisher. This means playing a creative role in society by disseminating teaching and research on a global scale, the cornerstones of which are good, long-term relationships, a focus on our markets, and an ability to combine quality and innovation. Leading authors, editors and societies should feel that SAGE is their natural home: we believe in meeting the range of their needs, and in publishing the best of their work. We are a growing company, and our financial success comes from thinking creatively about our markets and actively responding to the needs of our customers.

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