Working Paper: NBER ID: w2630
Authors: Richard Jensen; Jerry Thursby; Marie Thursby
Abstract: We examine how market structure and enforcement affect smuggling and welfare in a model where smuggling is camouflaged by legal sales. Conditions are given for when some, but not necessarily all, firms smuggle. With camouflaging, the market price is below the price when all sales are legal, so smuggling improves welfare if the price effect outweighs excess smuggling cost. This welfare effect is directly related to the degree of competition. Increased enforcement in this model potentially reduces welfare. The model is shown to be consistent with evidence on cigarette smuggling in the United States for 1975-1982.
Keywords: smuggling; market structure; welfare effects; cigarette tax evasion
JEL Codes: D43; H26; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| smuggling (K42) | welfare improvement (I38) |
| enforcement (K40) | welfare (I38) |
| market structure (D49) | welfare effects of smuggling (D69) |
| number of camouflagers (Y90) | overall welfare (I31) |
| degree of competition (L13) | welfare outcomes of smuggling (I38) |