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American Economic Journal: Economic Policy: Vol. 2 No. 2 (May 2010)

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The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs in Chicago

Article Citation

Merriman, David. 2010. "The Micro-geography of Tax Avoidance: Evidence from Littered Cigarette Packs in Chicago." American Economic Journal: Economic Policy, 2(2): 61-84.

DOI: 10.1257/pol.2.2.61

Abstract

The large tax differentials between Chicago and neighboring jurisdictions provide an incentive for cigarette tax avoidance. Data from a random sample of cigarette packs littered in Chicago reveals a startling degree of tax avoidance: three-quarters did not display a Chicago tax stamp. Also, the $2.68 difference between the tax in Chicago and surrounding counties decreases the probability of a local stamp by almost 60 percent, and a one mile increase in distance to the lower-tax state border increases the probability a pack of a local stamp by about one percent. These results are consistent with the predictions of economic theory. (JEL H25, H26, H71)

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Authors

Merriman, David (U IL, Chicago)

JEL Classifications

H25: Business Taxes and Subsidies including sales and value-added (VAT)
H26: Tax Evasion
H71: State and Local Taxation, Subsidies, and Revenue

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