A note on estimating cross-border effects of state cigarette taxes

Cross-border sales of cigarettes reduce the revenue from state cigarette taxes. Two Advisory Commission on Intergovernmental Relations (1977, 1985) studies estimate the cross-border effect by comparing their estimates of the response of state cigarette sales to state cigarette taxes to an average of Wiseman (1968) and Lyon and Simon's (1968) estimates of the response of individual consumers to cigarette price changes. All three studies use different controlling variables and data. The present paper measures both responses in the same regression, finding that about four-fifths of the sales response to state cigarette taxes is due to cross-border sales.