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Chicago losing cigarette taxes, litter study shows

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From a random sample of littered cigarette packs, a UIC researcher estimates that 75 percent of the cigarettes used in Chicago bring no tax revenue to the city.

The lost potential revenue totals about $10 million per month, said David Merriman, professor of public administration and head of economics, who studies cigarette tax avoidance worldwide.

"Cigarettes are a useful laboratory for the study of tax avoidance, given their cost, the easy access to low- or no-tax cigarette sources like Native American reservations or the Internet, and a relative lack of enforcement," he said.

For the study, published in the American Economic Journal: Economic Policy, Merriman organized research teams to collect littered cigarette packs in 100 Chicago neighborhoods and nearby jurisdictions, then examine the tax stamps on the packs.

In July 2007, when the teams collected the packs, Chicago's state and local taxes totaled $4.05 per pack, compared with $1.37 outside Cook County.

Merriman concluded that the $2.68 difference reduced the likelihood that a pack was purchased in Chicago by almost 60 percent.

By comparison, New York City loses about half its potential cigarette tax revenue to tax avoidance, despite taxes higher than Chicago's.

Distance reduces tax avoidance, Merriman said. Every mile between Chicago and the lower-tax source increased the likelihood of a Chicago stamp by about 1 percent.

"This research suggests that an increase of $1 per pack in Illinois, as recently proposed, would drive more Chicago residents to buy their cigarettes in Indiana," Merriman said.

Many states increase cigarette taxes to discourage smoking and raise revenue, Merriman said. But higher taxes might lead smokers to use lower-priced, hand-rolled or smuggled cigarettes, or to smoke fewer cigarettes more intensively, he added.

A separate survey of appropriately discarded cigarette packs showed that the sample of 1,000 littered packs was representative of all packs.

Despite the evidence, Merriman acknowledged that the use of littered packs as empirical evidence might allow some bias.

"Litterers may disproportionately be scofflaws," he said.

"People who smoke only in their homes or don't litter may be disproportionately inclined to comply with taxes."

The study was conducted with UIC's Institute of Government and Public Affairs and funded by the Robert Wood Johnson Substance Abuse Policy Research Program.

aranallo@uic.edu


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