The Economics of Tobacco and Tobacco Control

Chapter 14: Tobacco Tax Avoidance and Tax Evasion
Figure 14.5 Where Current Smokers Acquired Cigarettes in the Past 30 Days, by Country, 2010
Country Abbreviations: LV = Latvia, BG = Bulgaria, CZ = Czech Republic, SE = Sweden, PL = Poland, RO = Romania, HR = Croatia, ES = Spain,
UK = England, IE = Ireland, AL = Albania, FI = Finland, EL = Greece, FR = France, AT = Austria, HU = Hungary, IT = Italy, PT = Portugal.
Note: Countries are sorted by legal shops, including vending machines, in ascending order.
Source: Gallus et al. 2012. 21 Reprinted with permission.
Econometric Modeling
Several studies use econometric analyses of cigarette demand, employing tax-paid cigarette sales data as
a proxy for cigarette consumption and including measures of opportunities and/or incentives for tax
avoidance and evasion that attempt to account for the differences between sales and consumption. Most
cigarette demand studies that examine tax avoidance and evasion have come from the United States 22–30
with one study from Western European countries 8 and one global analysis. 31 In these studies, the
variables that reflect tax avoidance and evasion are constructed on the assumption that these activities
occur because of differences in prices and strength of governance between jurisdictions. These studies
account for the distribution of population living near borders, tourist travel, distances between high- and
low-tax jurisdictions, Internet penetration, exports, and other factors reflecting access to lower tax/price
jurisdictions, as well as corruption and other measures reflecting strength of governance. 8,30–32 Estimates
from the econometric models are used to predict sales with and without the tax avoidance/evasion
measures, and the difference between predicted sales and actual sales reflects the extent of tax avoidance
and evasion.
For example, Thursby and Thursby 28 and Yürekli and Zhang 29 used annual data from U.S. states and
associated changes in sales with changes in tax differences over time, estimating that the extent of crossborder
shopping and bootlegging varied over time but accounted for less than 10% of overall
consumption. Similarly, Stehr 30 compared survey data from the U.S. Behavioral Risk Factor
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