Question

Differential taxation of high-value products from state to state creates incentives for smuggling, both casual and commercial. Describe a couple of ways that states and the federal government could eliminate the economic driver for these anti-social activities. Can this be done without sacrificing state sovereignty?

Answer 1

The extent of smuggling has increased from borders to borders or state to state which varies from high taxable areas to low taxable areas.

What exactly happen is High value products both on casual and commercial have diffrential pricing in every state which creates the main the reason for smuggling and anti social acrivities , the smugglers buy these products from low pricing state and sell it to low pricing state.

Taxation in the perfectly inelastic or inelastic good higher revenue to the perfectly elastoc or elastic one.

Ways through which the state and federal government could elimina(2)te the anti social acrivities are-

(1) Create Uniform Pricing in every states - First of all Uniform pricing should be done in every state so that no profit margin becomes the reason of smuggling in any state. As smugglers buy from low priced state and sell it in high priced state , when there is uniform pricing in every state they have no reason to sell at any other state and earn abnormal profits.

(2) Remove cascading effect- The tax rate should also be done uniform in all the states that is Same rate of tax should be done in every state so that smugglers have no reason to save themselves from paying the lower tax in any of the state. Cascading effect should be immediately removed.

(3) Proper record of high value products with wholesellers- proper records of products should be there with the distributers and wholsellers so that no chance of any anti social activity is created. Keeping Proper records , tax stamps , etc and Providing every information to state officials will remove smuggling in any case.

Can this be done without sacrificing state soverignity-

Yes ofcourse this can be done without sacrificing state soverignity any state will not be expolited for paying the higher tax as in each and every state as the pricing of products as well as rate of tax is uniform in evey state.

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