Cross-border shopping dilutes public revenue less than previously thought
Will higher sin taxes, and therefore higher prices, on candy, soft drinks and beer lead to more cross-border shopping? The answer is often assumed to be yes in the public debate, where one of the main arguments against sin taxes on unhealthy products has long been that higher prices will encourage more Danes to shop across the border.
A new study published in The Scandinavian Journal of Economics challenges the assumption that higher sin taxes on unhealthy products will lead to more cross-border shopping. The researchers from the University of Copenhagen analyzed Danish households' purchasing patterns during the COVID-19 border closures in 2020 and 2021, when cross-border shopping was impossible.
They found that the amount of shopping that would have moved to Danish stores if the border had been closed was considerably smaller than official estimates suggest. While the Danish Ministry of Taxation estimated that the state lost DKK 1.16 billion due to cross-border shopping in 2019, the researchers' estimate is substantially lower at DKK 415 million.
The study also suggests that once people have driven a considerable distance to cross the border, they are likely to buy additional products to make the trip worthwhile, which could explain why Danes don't simply buy the same products in Denmark they purchase across the border.
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