Working Paper: NBER ID: w4763
Authors: Jerry G. Thursby; Marie C. Thursby
Abstract: In this paper, we develop and estimate a model of commercial smuggling in which some, but not all, firms smuggle a portion of the cigarettes they sell. The model is used to examine the effects on interstate cigarette smuggling of the Contraband Cigarette Act and a change in the federal excise tax. We find that both policies have unintentional effects. While the Contraband Cigarette Act was imposed to reduce interstate smuggling, we find it had the opposite effect. In contrast, an increase in the federal tax is not intended to affect smuggling, but we find it increases the portion of cigarette sales that is commercially smuggled.
Keywords: Cigarette smuggling; Tax evasion; Federal intervention
JEL Codes: H26; K42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Contraband Cigarette Act (H26) | increase in smuggling activities (K42) |
| increase in federal excise tax (H29) | increase in fraction of cigarette sales that are smuggled (H27) |
| increase in federal excise tax (H29) | decrease in legal sales (K49) |
| decrease in legal sales (K49) | increase in fraction of cigarette sales that are smuggled (H27) |