NBER Publications by Feng Liu

In this paper we contribute new empirical results about consumers’ decisions to avoid cigarette excise taxes, and a new applied welfare economic analysis of optimal excise taxation with tax avoidance. We examine direct measures of consumer excise tax avoidance in novel individual-level data from the 2003 and 2006 - 2007 Tobacco Use Supplements to the U.S. Current Population Survey. We estimate reduced-form models and a structural endogenous switching regression model. In the structural border-crossing equation, the decision to cross the border depends on the difference between the endogenous home- and border-state prices. The reduced-form and structural results show that the probability of cross-border cigarette purchases responds in predictable ways to the economic incentives created...

We conduct an empirical study of the impact of consumer price-search on the shifting of cigarette excise taxes to consumer prices. We use novel data on the prices smokers report actually paying for cigarettes. We document substantial price dispersion. We find that cigarette taxes are shifted at lower rates to the prices paid by consumers who undertake more price search – carton buyers, and especially, smokers who buy cartons of cigarettes in a state other than their state of residence. We also find suggestive evidence that taxes are shifted at slightly higher rates to the prices paid by non-daily smokers, less addicted smokers, and smokers of light cigarettes.