Driven to drink: Sin taxes near a border

Abstract

Abstract:This paper investigates household purchasing behavior in response to differing alcohol and tobacco taxes near an international border. Our study suggests that large tax differentials near borders induce economically important tax avoidance behavior that may limit a government's ability to raise revenue and potentially undermine the pursuit of important health and social policy goals. We match novel supermarket scanner and consumer expenditure data to measure the size and scope of the effect for households and stores. We find that stores near/far from the international border have statistically significantly lower/higher sales of beer and tobacco than comparable stores far/near the border. Moreover, we find that households near the border report higher consumption of these same goods. This is consistent with households facing lower prices. Finally, we find measures of externalities associated with the consumption of alcohol and tobacco are higher near the border.

Politicians' Opinions on Rivals in the Competition for Firms: An Empirical Analysis of Reference Points Near a Border

“…This allows for potential cross-border interactions because in such setting borders are not always perceived by politicians to be insurmountable obstacles for, for example, mobile capital. Moreover, one could argue that such effects need not be constrained to jurisdictions located physically at the border (e.g., effects of cross-border trade often persist at considerable distances from the border; see Asplund et al, 2007;Beatty et al, 2009). Such a proposition indeed follows naturally from the commonly acknowledged central importance of distance (see above); however, while the existing literature has consistently assumed that distance is crucial within a given region, the same logic can easily be transferred to jurisdictions outside that region.…”

“…Finally, as the effect of proximity to borders is likely to be highly non-linear, we complement the OLS regressions, which include distance and distance squared as discussed above, with natural spline regressions. This particularly accounts for nonlinear effects and allows a much more detailed analysis of the proximity effect (see Beatty et al, 2009, and, for recent applications of this estimator to the analysis of border effects). .…”

The Impact of Cigarette Tax Reduction on Consumption Behavior: Short-And Long-Term Empirical Evidence from Canada

“…First is cross-border purchasing. When smokers reside next to a regional (e.g., state, province) or international border where a large tax differential exists, consumers tend to buy these products where they are least expensive (Barnett et al, 1995;Lovenheim, 2008;Beatty, Larsen et al, 2009). Lovenheim (2008) shows that demand elasticities with respect to the home state price are indistinguishable from zero on average but vary significantly with the distance individuals live to a lower-price border.…”

“…In studies that explicitly include contraband, the actual effects of tax increases on consumption are reduced (Baltagi and Levin, 3 1986;Galbraith and Kaiserman, 1997). Moreover, cigarette contraband typically increases as taxes increase (Saba et al, 1995;Duffy, 2006) and with consumer access to other regions or jurisdictions where tobacco products are less expensive (Barnett et al 1995;Meier et Licari 1997;Lovenheim, 2008;Beatty, Larsen et al, 2009). This is consistent with the literature pertaining to counterfeit products (Lai and Zaichkowsky 1999;Wilcox, Kim and Sen 2009), which holds that, for products yielding the same benefits, a lower-priced option will typically be considered despite the fact that it is illegal.…”

“…Finally, most literature has left out the fact that, as taxes increase, consumers may turn to smuggled products and contraband (Saba et al, 1995;Duffy, 2006). To address this concern, most research that has directly taken into account this displacement of demand toward illegal offerings has suggested levying federal excise taxes instead of state-level taxes, preventing illegal smuggling from one region to another within the country (Barnett et al, 1995;Lovenheim, 2008;Beatty, Larsen et al, 2009), a conclusion also prevalent in the context of other products subjected to sin-taxes such as alcohol (Levy and Sheflin, 1985).…”