SMUGGLING AND CROSS-BORDER SHOPPING OF TOBACCO IN EUROPE

Governments have recently become concerned about cross border shopping and smuggling because it can decrease tax revenue. The tobacco indust ry predicted that, with the removal of border controls in the European Union, price differences between neighbouring countries would lead to a diversion of tobacco trade, legally and illegally, to countries wit h cheaper cigarettes. According to them this diversion would be throug h increased cross border shopping for personal consumption or through increased smuggling of cheap cigarettes from countries with low tax to countries with high tax, where cigarettes are more expensive. These a rguments have been used to urge governments not to increase tax on tob acco products. The evidence suggests, however, that cross border shopp ing is not yet a problem in Europe and that smuggling is not of cheap cigarettes to expensive countries. Instead, more expensive ''internati onal'' brands are smuggled into northern Europe and sold illegally on the streets of the cheaper countries of southern Europe.