Dissertations
Friday, 30 January, 2026
Aisha Baisalova: Spatial Heterogeneity in Consumer Responses to Excise Taxes: Evidence from Cross-State Cigarette Purchases in the United States
Dissertation Committee:
Nikolas Mittag (CERGE-EI, chair)
Alena Bičáková (CERGE-EI)
Štěpán Jurajda (CERGE-EI)
Defense Committee:
Krešimir Žigić (CERGE-EI, chair)
Martin Dlouhý (VŠE)
Christian Ochsner (CERGE-EI)
Meeting link: https://cerge-ei.webex.com/cerge-ei/j.php?MTID=m78de2c0a9ec655573399ac3d35da8219
Meeting number: 2743 012 4491
Meeting password: 832696
Abstract:
This dissertation examines the impact of geographic proximity to lower-tax jurisdictions referred to as the “border effect” on consumer responses to cigarette excise taxes in the United States. Using NielsenIQ Consumer Panel data, the three chapters collectively analyze how this proximity influences the tax sensitivity of cigarette consumption, consumer behavioral responses, and the pass-through of excise taxes to retail cigarette prices.
The first chapter examines the bias created by border effects and shows that tax sensitivity of cigarette consumption is systematically attenuated for consumers residing near the borders of states with lower cigarette taxes. This bias is present across all demographic groups and declines with the distance from the lower-tax state border, reflecting greater opportunities for tax avoidance among those residing near lower-tax state borders.
The second chapter further investigates how border effects influence the tax sensitivity of cigarette consumption. We suggest a novel analytical framework that uses a threshold regression model with location, and time fixed effects to explicitly model the “border effect” as a linearly decreasing function of distance to the nearest lower-tax state, with a maximal influence at the border and a vanishing effect beyond a specified cutoff distance. Our analysis of demographic heterogeneity shows that tax sensitivity declines with income: low-income consumers are the most responsive to excise taxes, while high-income consumers are the least responsive. Although all groups are affected by border effects, for high-income consumers, the effect is limited to short distances, and disappears beyond 60 kilometers from the lower-tax border.
The third chapter examines how border effects influence the pass-through of taxes to cigarette prices. We analytically formulate tax pass-through as the “true” pass-through rate, adjusted by
the “border effect”. We model the border effect as an exponential function that decreases with distance from the lower-tax state, reaches its highest value at the border itself and diminishes to zero at greater distances. To estimate the parameters of the “border effect” function, we employ an exponential regression model with location, time, and UPC fixed effects. Our analysis of demographic heterogeneity shows that high-income consumers exhibit the highest pass-through rates. In contrast, low-income consumers and those who are not engaged in paid employment are more likely to exploit cross-border purchasing and other tax avoidance opportunities, resulting in a reduced tax pass-through for these demographic groups.
Overall, the findings highlight that geographic proximity to lower-tax state borders significantly undermines the intended impact of excise tax policies. We show that cigarette excise taxes, while effective on average, can operate unevenly across geographies and demographic groups. Policymakers should consider both geographic and demographic factors in the evaluation and design of excise tax policy, particularly in a tax system with heterogeneous tax regimes such as the US.
