Interstate Cigarette Bootlegging: Extent, Revenue Losses, and Effects of Federal Intervention

Abstract

We develop a model of commercial smuggling in which some firms smuggle a portion of the cigarettes they sell. The model is used to estimate the extent of smuggling across state lines and the effects of federal efforts to control smuggling via the Contraband Cigarette Act (CCA). We find that commercial smuggling accounted for three to four percent of all cigarettes sold during the 1970s, a decade of high excise tax differentials. Further, the CCA had the unintentional effect of increasing commercial smuggling, a result consistent with a change in enforcement and modes of smuggling reported subsequent to the Act.

JEL Classification: H25