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Cigarette tax avoidance and evasion.

Mark Stehr1

  • 1Department of Economics, LeBow College of Business, Drexel University, Rm. 504-E Matheson Hall, 32nd and Market Streets, Philadelphia, PA 19104-2875, USA. stehr@drexel.edu

Journal of Health Economics
|February 22, 2005
PubMed
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State cigarette tax increases drive tax avoidance, not just reduced smoking. Tax avoidance, including smuggling, is at least double the consumption response, impacting sales data accuracy.

Area of Science:

  • Public Health
  • Health Economics
  • Criminology

Background:

  • State cigarette taxes vary, creating incentives for tax avoidance.
  • Tax avoidance methods include smuggling, legal border crossing, and internet purchasing.
  • Rising taxes decrease tax-paid sales due to reduced consumption and increased avoidance.

Purpose of the Study:

  • To quantify tax avoidance in cigarette sales.
  • To compare cigarette sales data with consumption data.
  • To assess the impact of tax avoidance on smoking prevalence estimates.

Main Methods:

  • Compared cigarette sales data with consumption data from the Behavioral Risk Factor Surveillance System (BRFSS).
  • Analyzed residual changes in sales after accounting for consumption changes.

Related Experiment Videos

  • Estimated the magnitude of tax avoidance relative to consumption changes.

    • Main Results:

    • Tax avoidance response to tax changes is at least twice the consumption response.
    • Tax avoidance accounted for up to 9.6% of sales between 1985 and 2001.
    • Tax-paid sales data understate smoking levels and overstate smoking reduction.
    • Legal border crossing represents a minimal form of tax avoidance.

    Conclusions:

    • State cigarette taxes incentivize significant tax avoidance.
    • Effective smoking control requires policies addressing both taxes and avoidance (e.g., anti-smuggling measures).
    • Alternative policies like counter-advertising and smoking restrictions are crucial for smoking control.