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Abstract
Cross-border shopping of alcoholic beverages reduces domestic tax revenues. In this article, we estimate the magnitude of Norwegian cross-border shopping of hard liquor and wine and its effects on tax revenues by using the travel restrictions during the COVID-19 pandemic as a natural experiment. The Norwegian alcohol retail market is controlled by a state monopoly (Vinmonopolet), and our data set includes the complete transaction data of Vinmonopolet. The effects are identified by using a difference-in-difference approach comparing changes in sales in stores with different driving time to the nearest cross-border alcohol store. We find statistically significant effects of cross-border shopping for driving times up to three hours. The reduced sales in the stores of Vinmonopolet are estimated to be about 9% for wine and 6% for hard liquor corresponding to almost one billion NOK in lost annual tax revenues.
Keywords: alcoholic beverages, cross-border shopping, excise tax, natural experiment, value-added tax.
JEL Codes: D12, F15, H26, I18.