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Excise Tax Avoidance: The Case of State Cigarette Taxes

May 3, 2010
By Phillip DeCicca

This study, originally published in the National Bureau of Economic Research’s April 2010 edition, uses individual-level data from the 2003, 2006, and 2007 Tobacco Use Supplements to the United States Census Bureau’s Current Population Survey to directly

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This study, originally published in the National Bureau of Economic Research’s April 2010 edition, uses individual-level data from the 2003, 2006, and 2007 Tobacco Use Supplements to the United States Census Bureau’s Current Population Survey to directly measure patterns in consumers’ excise tax avoidance. By using empirical data to construct behavior models, the researchers were able to gain insight into why consumers cross state borders to purchase tobacco products. 

After analyzing the available economic data, McMaster University Canada Research Chair, Dr. Philip DeCicca, concludes that “many states may already impose cigarette excise taxes that are higher than optimal, and there is a strong policy trend towards even more cigarette tax hikes.” DeCicca continues, noting “cigarette taxes are regressive because the poor are more likely to smoke,” but “empirical results suggest that tax avoidance increases with income.

DeCicca adds that, “because richer smokers avoid more taxes, state cigarette taxes may be even more regressive than commonly estimated.”