Cigarette Smuggling in Response to Large Tax Increase in Indiana is Greatly Exaggerated

Indiana, like other states, has enjoyed substantial new revenue each time it has raised its cigarette tax rate, followed by years of higher revenue levels. However, concerns about increased tax avoidance and evasion have deterred the state from implementing large increases in its cigarette and other tobacco taxes. In a new report, the Tobacconomics program shows that every state that has passed a significant cigarette tax increase has enjoyed a substantial, sustained increase in its state cigarette tax revenues. This revenue increase occurs, despite the significant declines in smoking rates and tax-paid cigarette sales caused by the cigarette tax rate increase, and despite any increases in cigarette tax avoidance and evasion. In a detailed analysis of all significant state cigarette tax increases between 2006 and 2015 (increases of 50 cents or more per pack), we calculated the increase in state cigarette tax revenues in the first 12 months following a tax increase, changes in cigarette tax revenues in all neighboring states during that same 12-month period, and the total change in revenues in all neighboring states, in both absolute and percentage terms.

Use “download” tab in top right corner for the full report, policy brief available here.