This paper uses data on cigarette consumption in the Current Population Survey Tobacco Supplements to estimate cigarette demand models that incorporate the decision of whether to smuggle cigarettes across a lower--price border. I find demand elasticities with respect to the home state price are indistinguishable from zero on average and vary significantly with the distance individuals live to a lower--price border. However, when smuggling incentives are eradicated, the price elasticity is negative but still inelastic. I also estimate between 13 and 25 percent of consumers purchase cigarettes in border localities. The central implication of this study is cross--border smuggling confounds ...
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