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American Economic Journal: Economic Policy: Vol. 2 No. 1 (February 2010)
AEJ: Policy Volume. 2, Issue 1 | 
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Playing with Fire: Cigarettes, Taxes, and Competition from the Internet
Article Citation
Goolsbee, Austan,
Michael F. Lovenheim, and
Joel Slemrod. 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet."
American Economic Journal: Economic Policy,
2(1): 131-54.
DOI: 10.1257/pol.2.1.131
DOI: 10.1257/pol.2.1.131
Abstract
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, this 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. (JEL D12, H25, H31, H71,
L66)
Article Full-Text Access
Full-text Article
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Download Data Set (78.54 KB)
Authors
Goolsbee, Austan (U Chicago)
Lovenheim, Michael F. (Stanford Institute for Economic Policy Research, Stanford U)
Slemrod, Joel (U MI)
Lovenheim, Michael F. (Stanford Institute for Economic Policy Research, Stanford U)
Slemrod, Joel (U MI)
JEL Classifications
D12: Consumer Economics: Empirical Analysis
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H31: Fiscal Policies and Behavior of Economic Agents: Household
H71: State and Local Taxation, Subsidies, and Revenue
L66: Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H31: Fiscal Policies and Behavior of Economic Agents: Household
H71: State and Local Taxation, Subsidies, and Revenue
L66: Food; Beverages; Cosmetics; Tobacco; Wine and Spirits
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