In addition to a state excise tax on cigarettes of $4.35 per pack,New York City imposes an additional $1.50 per pack excise tax.A 2013 report estimated that nearly 60 percent of cigarettes sold in New York are smuggled into the state or purchased online to avoid these taxes.Evasion of the cigarette tax costs the state of New York approximately $1.7 billion in revenue per year.To maximize revenue,what should the state of New York do? Explain your answer.

Question

Quizplus · Accepted Answer

Decreasing the excise tax on cigarettes could reduce the incentive for smuggling and illegal purchases, potentially increasing legal sales and, as a result, tax revenue. High taxes have led to a significant portion of cigarette sales occurring through illegal channels, reducing the effectiveness of the tax. Lowering the tax might bring some of these sales back into the legal market, thereby increasing the state's revenue despite the lower tax rate per pack.

In Addition to a State Excise Tax on Cigarettes of $4.35