NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Playing With Fire: Cigarettes, Taxes and Competition From the Internet

Austan Goolsbee, Michael Lovenheim, Joel B. Slemrod

NBER Working Paper No. 15612
Issued in December 2009
NBER Program(s):   PE

This paper documents the rise of the Internet as a source of state-tax-free cigarettes and its impact on taxed sales elasticities. Using data on cigarette tax rates, taxable cigarette sales and individual smoking rates by state from 1980 to 2005 merged with data on Internet penetration, the paper documents that there has been a substantial increase in the sensitivity of taxable cigarette sales to state tax rates that is correlated with the rise of Internet usage within states. The estimates imply that the increased sensitivity from cigarette smuggling over the Internet has lessened the revenue generating potential of cigarette tax increases significantly, although states are still far from the revenue-maximizing tax rates.

download in pdf format
   (208 K)

email paper

This paper is available as PDF (208 K) or via email.

Acknowledgments

Machine-readable bibliographic record - MARC, RIS, BibTeX

Published: Austan Goolsbee & Michael F. Lovenheim & Joel Slemrod, 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 131-54, February.

Users who downloaded this paper also downloaded these:
Colman and Remler w10906 Vertical Equity Consequences of Very High Cigarette Tax Increases: If the Poor are the Ones Smoking, How Could Cigarette Tax Increases be Progressive?
DeCicca, Kenkel, and Liu w15941 Excise Tax Avoidance: The Case of State Cigarette Taxes
DeCicca, Kenkel, and Liu w15942 Who Pays Cigarette Taxes? The Impact of Consumer Price Search
Chaloupka, Peck, Tauras, Xu, and Yurekli w16287 Cigarette Excise Taxation: The Impact of Tax Structure on Prices, Revenues, and Cigarette Smoking
Kononova and Whalley w15615 Recent Russian Debate on Moving from VAT to Sales Taxes and Its Global Implications
 
Publications
Activities
Meetings
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us