TY  - JOUR
AU  - Goolsbee,Austan
AU  - Lovenheim,Michael
AU  - Slemrod,Joel B.
TI  - Playing With Fire: Cigarettes, Taxes and Competition From the Internet
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 15612
PY  - 2009
Y2  - December 2009
UR  - http://www.nber.org/papers/w15612
L1  - http://www.nber.org/papers/w15612.pdf
N1  - Author contact info:
Austan Goolsbee
Booth School of Business
University of Chicago
5807 S. Woodlawn Avenue
Chicago, IL 60637
Tel: 773/702-5869
Fax: 773/702-0458
E-Mail: goolsbee@chicagobooth.edu

Michael Lovenheim
Department of Policy Analysis and Management
Cornell University
135 Martha Van Rensselaer Hall
Ithaca, NY 14853
Tel: 607/255-0705
Fax: 607/255-4071
E-Mail: mfl55@cornell.edu

Joel Slemrod
University of Michigan Business School
701 Tappan Street
Room R5396
Ann Arbor, MI  48109-1234
Tel: 734/936-3914
Fax: 734-615-4323
E-Mail: jslemrod@umich.edu
AB  - 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.
ER  -