by Zev Winston van Zanten
Abstract
This study examines compliance with North Carolina’s Alcoholic Beverage Control (ABC) system by studying cross-border alcohol purchases. Exploiting exogenous geographic variation in proximity to neighboring states with less restrictive alcohol regimes and differing price structures, I use distance from population-weighted county centroids to state borders as a proxy for the cost of noncompliance. Using a novel county-level panel dataset combining administrative ABC sales records with demographic, economic, and geographic controls, I estimate the relationship between proximity to state borders and per capita liquor sales. I find that counties closer to South Carolina exhibit significantly lower in-state liquor sales, consistent with cross-border substitution, with effects that diminish as distance increases. Evidence for similar behavior along the Tennessee and Virginia borders is weaker and less consistent across specifications, suggesting that cross-border substitution is most pronounced along the South Carolina border. A difference-in-differences analysis of North Carolina’s 2009 liquor tax increase suggests that higher taxes amplify cross-border substitution, undermining the revenue and regulatory goals that motivate alcohol monopoly systems. Together, these results indicate that alcohol control regimes operate less as hard constraints on consumption than as friction costs, the effectiveness of which erodes wherever alternative markets are geographically accessible.
Jeff DeSimone, Faculty Advisor
Michelle Connolly, Faculty Advisor
