Applied Economics Letters
This article uses recent US state level data to estimate the demand for cigarettes. The main contribution of this work is that, unlike previous studies, it takes into account both price and nonprice incentives behind the smuggling of cigarettes. The results show the demand for cigarettes to be elastic and greater than that found in the previous literature. The effects of greater literacy and income on smoking are insignificant. Also, the magnitude of own price elasticity seems affected by whether a correction is made for border prices. Comparing the price and nonprice influences on cigarette smuggling, it seems that price inducements remain the main force behind smuggling. Policy implications are discussed.