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Playing with Fire: Cigarettes, Taxes, and Competition from the Internet*

* This paper has been replicated

Author

Listed:
  • Austan Goolsbee
  • Michael F. Lovenheim
  • Joel Slemrod
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)

Suggested Citation

  • Austan Goolsbee & Michael F. Lovenheim & Joel Slemrod, 2010. "Playing with Fire: Cigarettes, Taxes, and Competition from the Internet," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 131-154, February.
    • Handle: RePEc:aea:aejpol:v:2:y:2010:i:1:p:131-54
    Note: DOI: 10.1257/pol.2.1.131
    as

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    References listed on IDEAS

    as
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    Replication

    This item has been replicated by:
  • Emily Satterthwaite, 2018. "Replication of Goolsbee, Lovenheim, and Slemrod’s “Playing with Fire: Cigarettes, Taxes, and Competition from the Internet†(American Economic Journal: Economic Policy, 2010)," Public Finance Review, , vol. 46(5), pages 879-885, September.

    • More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • H71 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Taxation, Subsidies, and Revenue
    • L66 - Industrial Organization - - Industry Studies: Manufacturing - - - Food; Beverages; Cosmetics; Tobacco

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    This item is featured on the following reading lists, Wikipedia, or ReplicationWiki pages:
    1. Playing with Fire: Cigarettes, Taxes, and Competition from the Internet (American Economic Journal: Economic Policy 2010) in ReplicationWiki

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