Tax avoidance using legal means and tax evasion using illegal means (e.g. smuggling) may significantly undermine the effectiveness of raising taxes as the most effective policy to reduce drinking and related harms. As tax or price increases, consumers can switch down to low-priced products resulting from tax avoidance and evasion instead of reducing alcohol use. Furthermore, tobacco research shows that vulnerable populations, such as young, low-income, and minority consumers, are more likely to engage in tax avoidance and evasion, suggesting that it may exacerbate disparities in drinking and related consequences. In this Pathway to Independence proposal, I will fill in the research gap by examining factors that may contribute to alcohol tax avoidance and evasion, which include the incentives for cross-border shopping and smuggling, complicated tax structures that rely more on ad valorem taxes or differentiate by tiers, and manufacturers' market power that alters the effect of tax structure on tax avoidance by setting and maintaining prices and price ranges. In particular, I will apply a novel approach to measure incentives for cross-border shopping and smuggling, using Geographic Information System (GIS) methods, which incorporate specific, excise, and sales taxes, absolute distance to lower tax jurisdictions, the size of the tax difference, travel time based on road and highway conditions, and population distribution. The proposed research is also timely as the manufacturers' market power has been altered by rapidly growing independent craft breweries and wineries, which may significantly impact tax avoidance by decreasing manufacturers' power to set prices. Findings from the proposed study will also inform policy makers about how to improve the effectiveness of taxation policies, particularly among vulnerable populations. There are four specific aims: 1) to identify the relationship between alcohol tax structure and price variability that reflects opportunities for ta avoidance; 2) to examine the effects of tax avoidance and evasion, resulting from complicated tax structures and incentives for cross-border shopping and smuggling, on alcohol use and consequences; 3) to examine the impact of manufacturers' market power on tax avoidance and consequences, through its responses to changes in tax structure; and 4) to examine the effects of increased affordability of alcoholic beverages on drinking and related consequences, focusing on vulnerable populations. As a young investigator who specializes in studying tobacco use behaviors and tobacco control policies, I seek to expand the scope of my research. The proposed study will integrate my expertise in tobacco economics with essential training in GIS and spatial analyses, as well as in alcohol taxation and policy research. This will provide me with the expertise to conduct a comprehensive analysis to study disparities in alcohol policy effectiveness in the long run as an independent investigator. In addition, the proposed work will be mentored by an interdisciplinary team of experts (Drs. Chaloupka, Chriqui, and Slater) whose research fields are complementary to each other. The mentorship I will receive from them, as well as the excellent research environment, resources, and career development activities offered by the Institute for Health Research and Policy and the greater UIC community, will assist me in completing the proposed study and making a successful transition into an independent research career.
Excessive alcohol use is a major factor for adverse health, economic, and behavior-related consequences. While raising taxes is arguably the most effective policy to curb excessive drinking and related consequences, tax avoidance and evasion may significantly erode its effectiveness by increasing the affordability of alcoholic beverages. Research on factors that contribute to tax avoidance/evasion, including tax structure, cross-border shopping and smuggling, and manufacturers' market power, will have significant public health impact by informing policy makers about how to improve the effectiveness of tax policies by limiting incentives and opportunities for tax avoidance/evasion.
