Friday, November 7, 2014
Fiesta 1 (Hyatt)
*Names in bold indicate Presenter
We study the price effects of cigarette tax competition induced by the tax-exempt nature of cigarette purchases from online sales (using state internet penetration rates) and from Native American reservations (using variation in Native American casino openings). Using ACCRA/C2ER quarterly data on local cigarette prices from 1976-2003, we document three new facts. First, the number of casinos within 25 miles of a city is associated with significantly lower local cigarette prices. Second, higher internet penetration is associated with significantly lower local cigarette prices. These relationships are highly robust and are unique to cigarette prices. Finally, the pass-through of state excise taxes on cigarettes is significantly lower when there is more internet penetration, suggesting that tax competition reduces the ability of retailers to pass tax-hikes through to consumers.