Smoke Tax

The Bowling Green Daily News posts at article online regarding a raise in per pack cigarette tax. The author argues that an increase in the tax will increase revenue in states bordering KY as consumers will begin driving across to other states to purchase cigs.

I thought this was an interesting concept, because I am for taxing cigarettes but have yet to see the media bring up this claim. So I thought I would look into it a little more, and did a little analysis to see what exactly would be the radius someone would have to live within in order to see savings in driving across the border. If you take a look, the analysis begins with the $ difference in the sales tax between KY and the border state in question (you choose...). The gas price was just how much gas costs per gallon the day I had decided to do this, so$2.85. The "Gas Cost=Diff in Sales Tax" is the amount (in gallons) it would take to equal the $ difference in sales tax. So...take the first data point, it would take .004 gallons priced at $2.85 to equal the $.01 difference in savings. Now...the 25 MPG is just a number I chose, nothing special about it other than hopefully thats about the average MPG out there.

So...thats the explanation of the variables. The dependent variable here is the mileage it will take to equalize the demand (to equal the savings in sales tax). Obviously, as the $ diff in sales tax increases, consumers living in a larger radius experience savings. So, in order for someone to realize savings on $1 difference in sales tax and consumer must live within 4.386 miles since he would have to drive both there and back, effectively halving the effective "radius of savings".

So...savings for those living within 4.4 miles of the border. I dont know about you, but I'm willing to bet that the revenues lost due to consumers traveling across the border will be a very small portion compared to the revenues gained.