NCJ Number
85336
Date Published
1981
Length
21 pages
Annotation
This study uses a model of simple linear regression to portray the process of cigarette smuggling.
Abstract
The model assumes two different modes of cigarette smuggling: 'casual' smuggling and 'organized' smuggling. Casual smuggling is the purchase on a routine basis of cigarettes in one State for consumption in a bordering higher-tax State. It is assumed that the cigarettes are purchased for use by the purchaser's immediate associates, not as a profitmaking sideline. Organized smuggling is the purchase by major smugglers of cigarettes in one State for sale and consumption in a higher-tax State. Casual smugglers are assumed to smuggle cigarettes into their States according to their States' population and to the tax differential; i.e., for a given tax differential across borders, an increase in the State's population will produce an increase in the amount of smuggling into the State; and for a given population, an increase in the tax difference will also produce an increase in the amount of smuggling. The same assumptions about the effect of population and tax differences are applied to organized smuggling, although only from 'allowable' low-tax States to higher-tax States. A low-tax State is an allowable source for a higher-tax State if there is no State closer to the higher-tax State that has a lower tax. The model posits that the number of cigarettes sold in a State is the sum of those bought in that State for use by its residents and those bought in that State for consumption by residents in the higher-tax States. The model was used to estimate the effect of tax changes. A State that had been experiencing a great deal of cigarette smuggling wishes to determine the impact of different taxing policies on revenue and on smuggling. The application of the model showed a trade-off between increasing the revenue to the State and decreasing the smuggling problem in the State. Tabular and graphic data, and 17 references are provided.