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Discussion Paper Details

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Title: Demand and Distance: Evidence on Cross-Border Shopping

Author(s): Bj�rn Marcus Asplund, Richard Friberg and Fredrik Wilander

Publication Date: April 2005

Keyword(s): cross border shopping, european integration, law of one price, tax competition and tax harmonization

Programme Area(s): Industrial Organization, International Macroeconomics and International Trade and Regional Economics

Abstract: While many studies have documented deviations from the Law of One Price in international settings, evidence is scarce on the extent to which consumers take advantage of price differentials and engage in cross border shopping. We use data from 287 Swedish municipalities to estimate how responsive alcohol sales are to foreign prices, and relate the sensitivity to the location?s distance to the border. Typical results suggest that the elasticity with respect to the foreign price is around 0.4 in the border region; moving 200 (400) kilometres inland reduces it to 0.2 (0.1). Given that cross-country price differences for alcohol and other products are often caused by taxes, our evidence has implications for the debate on tax competition/harmonization.

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Bibliographic Reference

Asplund, B, Friberg, R and Wilander, F. 2005. 'Demand and Distance: Evidence on Cross-Border Shopping'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=4983