The Effect of Excise Taxes on Cigarette Smuggling: An Instrumental Variable Approach

Author

Tim Burke, Claremont McKenna CollegeFollow

Graduation Year

Fall 2013

Document Type

Open Access Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Mary Evans

Terms of Use & License Information

Terms of Use for work posted in Scholarship@Claremont.

Rights Information

© 2013 Tim Burke

Abstract

I use an instrumental variable approach to estimate the effect of excise taxes on cigarette smuggling. The IV approach addresses the potential endogeneity of excise taxes while controlling for other determinants of smuggling. I use panel data on 47 states from 1990-2009. The main results confirm the validity of the instrument, the percent of Democrats in the upper house of state legislatures, but do not reject exogeneity of excise taxes. Robustness tests using an alternative measure of cigarette smuggling find the opposite result. All models find that per capita income and the number of federal police per 100,000 residents are significant determinants of smuggling.

Recommended Citation

Burke, Tim, "The Effect of Excise Taxes on Cigarette Smuggling: An Instrumental Variable Approach" (2013). CMC Senior Theses. 764.
https://scholarship.claremont.edu/cmc_theses/764