The Legal and Illegal Markets for Taxed Goods: Pure Theory and an Application to State Government Taxation of Distilled Spirits

The Effects of Government Regulation on Teenage Smoking

“…13For a similar finding in the context of alcohol consumption, see Smith (1976 151f a5 exceeds one, cigarette smoking is a bandwagon good with an upward sloping market demand curve. This is inconsistent with a stable equilibrium because the supply function is assumed to be infinitely elastic in the estimation procedure.…”

State monopolies and alcoholic beverage consumption

“…Among the cross-sectional demand studies that have used these data are Wales (1968), Smith (1976), Zardkoohi and Sheer (1984), Omstein and Hanssens (1985), and Swidler (1986b). However, 1984 was the last year these price data were made available in published form.…”

“…Second, wholesalers may underreport their sales in order to evade state taxes, thus biasing shipment data downward in high tax states. These illegal activities have been investigated by Smith (1976), but with generally inconclusive results as to their importance. Third, some residents of a state may obtain alcoholic beverages from an adjacent state if the price differences between the two states make this activity worthwhile.…”

“…Since Wales's (1968) initial discussion of the problem of adjacent-state price competition, several empirical solutions have been proposed. Smith (1976) suggested the use of the lowest adjacent-state price expressed relative to the home state's own-price. Ornstein and Hanssens (1985) used the same variable deflated by the geographic size of the home state.…”

“…Many of these regulations have recently been the subject of public scrutiny and debate. For example, between 1970 and1976, 30 states reduced the minimum drinking age, but between 1976 and 1984, 27 of these states again raised the age limit. In California, 50 cities banned the common-site sale of alcoholic beverages and gasoline (McCarthy and Umbeck 1988), while Kansas voters recently amended the state constitution to permit liquor-by-the-drink (Hersch and McDougaU 1988).…”