Panel Paper: Empty Discarded Pack Data and the Prevalence of Illicit Trade in Cigarettes

Thursday, November 3, 2016 : 10:20 AM
Northwest (Washington Hilton)

*Names in bold indicate Presenter

Alberto Aziani1, Jonathan Kulick2, Neill Norman3 and James Prieger2, (1)Università Cattolica del Sacro Cuore, (2)Pepperdine University, (3)Cornerstone Research

One of the risks involved with restricting access to tobacco through regulation and taxation is evasion of the law by consumers. Evasion reduces the efficacy of regulations and creates new harms from illicit markets. Illicit trade in tobacco products (ITTP), creates its own detrimental social and economic impacts. Tobacco policymaking should therefore consider ITTP, since some of the health benefits of regulation will be offset by enforcement costs and the negative impacts of ITTP on the public.

To be able to analyze the outcomes following from particular regulations, policymakers should learn as much as possible about the current state of affairs regarding illicit trade. Accurately describing ITTP is difficult: market participants try to hide, have reasons not to be frank in surveys, etc. Analysts interested in tobacco policy and those interested in illicit markets more generally therefore have limited data to study in order to compose policy recommendations.

To improve greatly the state of data availability in this area,we are working with an industry source to assemble for public usage a large, novel set of data from discarded pack studies. In discarded pack studies, teams of researchers are sent out to find all discarded cigarette packs in a defined geographic area. Packs are examined for the tax stamps for the local area or other telltale signs that indicate an illegal purchase.

The purpose of this paper is to 1) describe the data to interested researchers, 2) instruct them how to access the data, and 3) use the data to analyze the prevalence of ITTP in the US. Given the large number of researchers in the fields of economics, criminology, tobacco control, and others who are interested in analyzed illicit markets in general and black markets for tobacco in particular, we expect that these new data will be heavily used in the literature.

Data from 23 collections in numerous major U.S. cities during 2010-2014 are available. Typically 5,000 observations are available in each collection. Our analyses confirm that the incidence of cigarette-tax avoidance and ITTP varies substantially within the United States; New York City and Buffalo, for example, have level of non-state-taxed cigarettes almost five times larger than the rest of the sample. By contrast, Los Angeles has a particularly low prevalence of illicit cigarettes, but a high share of cheap whites within its black market. High tobacco taxes in New York State are likely to contribute, but the composition of ITTP is heterogeneous within New York State, and Illinois and Minnesota also have high taxes but tax avoidance is less common.

We also find that counterfeit cigarettes and cheap whites account for a small part of ITTP in many parts of the United States, while counterfeit tax stamps are found in New York City. Future research will include more-sophisticated econometric analysis of how ITTP relates to tobacco-control policies, such as the elasticity of illicit consumption with respect to taxation rates. Moreover, the geographic detail that EDP data offer allows for better spatial analysis of illicit tobacco markets.