In recent years sizable differences between state cigarette taxes have led to the rise of interstate smuggling. This study presents an interstate demand analysis, using quarterly state sales data, to examine this and other aspects of the cigarette market. For the cases examined, nonresident purchases for 1970–1971 are estimated to have accounted for approximately 15% of the sales in the low tax states. In addition to price elasticities, income elasticities, “health scare,” and seasonal effects are estimated. The determinants of retail state cigarette prices are also explored in the Appendix.
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