In 1999 the EU abolished duty-free on intra-EU travel, whilst other countries still retain duty-free shopping for international travellers. We address several aspects of duty-free trade, including effects on consumption, revenue and price-setting. From a global perspective we identify the distortions generated by duty-free trade. We review, and dismiss, various arguments that might conceivably support a role for duty-free in promoting global economic welfare. The existence of duty-free trade is explained as a phenomenon that individual countries find in their national self interest as seen both from the arrival and the departure end, i.e. countries have reasons both to admit duty-free goods and to permit their sale to departing passengers.
Reference: Vidar Christiansen and Stephen Smith (2001) "The Economics of Duty-Free Shopping" CESifo Working Paper No 595, ISSN 1617-9595, October 2001. Munich: CESifo.
.pdf file at CESifo
Other papers on the economics of duty-free shopping
Vidar Christiansen and Stephen Smith (2004) "National Policy Interests in the Duty Free Market", CESifo Economic Studies, vol 50, 2/2004, 351-375. ISSN 1610-241X
Vidar Christiansen and Stephen Smith (2008) "Optimal Commodity Taxation with Duty-Free Shopping", International Tax and Public Finance, 15(3), pp 274-296. ISSN 0927-5940. DOI: 10.1007/s10797-007-9034-z.