The determinants of cross border shopping: Implications for tax revenues and institutional change

This paper analyzes the choice by Canadian consumers whether to cross the border into the U.S. to shop. To do so a model is built in which consumers value two consumption goods (goods that can and cannot he smuggled), leisure, and government services (provided through commodity taxes). The model's predictions are tested against same-day border crossing data for the period 1972:01 through 1997:12. The results are then used to estimate the tax revenues forgone from the introduction of the CST in Canada. The data also suggest an extension in our thinking about the traditional domain of policy responses-from the use of alternative taxes to institutional and/or regulatory change.