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

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 $2.6...

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Bibliographic Details
Published in:American economic journal. Economic policy 2010-05, Vol.2 (2), p.61-84
Main Author: Merriman, David
Format: Article
Language:English
Subjects:
Behavior
Cigarette smoking
Cigarettes
Compliance
Data collection
Economic policy
Economic theory
Estimated taxes
Excise taxes
Income taxes
Municipal taxes
Noncompliance
Personal income
Personal income taxes
Sales
Sales taxes
Shopping
Single tax system
Smuggling
State taxes
Studies
Tax avoidance
Tax increases
Tax rates
Tobacco taxes
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Summary: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.
ISSN:1945-7731
1945-774X
DOI:10.1257/pol.2.2.61