Swedish booze cruise

One of Andrew Sullivan's readers relates the following about ferry cruises departing from Sweden:

There are two competing Ferry companies, The Silja line (white boats, now called Tallink) and the Viking line (red boats). The have the same schedules (plus or minus 15 minutes). They each have a boat from Finland and a boat from Sweden meet in the middle of the Baltic at the harbor shown. For each of the four boats, most passengers switch boats at Mariehamn and go back to their home countries. So really the boats are boats to nowhere.

The back story. These ships represent a huge source of pollution that is caused by/subsidized by a strange EU policy. The semi-autonomous Åland islands of Finland have a special "tax-free" status in the EU. If a boat lands there, it gets credit for an international trip. So the boats can sell cigarettes and alcohol (and little trinkets of various kinds) tax-free. Most of the people riding on the boat from, say Sweden to Finland get off in Mariehamn (the Åland islands) and get right back on the ship coming from Finland and going to Sweden. The same the other way around. That is, people ride the ship for the tax-free experience, not to get anywhere.

Thus the economy of the Åland islands is held up by a tax-free law that makes for thousands of tons of carbon pollution. Without the special EU tax-free exemption for the Åland Islands, ferry traffic would go way down. Many of the passengers are induced to ride by the tax-free status that the stop gives. The Åland islands have a population of 35,000 people yet are served by 23 ferries per day. These huge ships, with thousands of passengers will stop for, literally, about a minute. Sometimes only one or two people will get on or off. Tons and tons of fuel for a tax exemption.

The story seems to check out on wikipedia. Of course, this should surprise no one, as tax arbitrage by Scandinavian consumers has been widely documented, with this 2002 Economist article noting Norwegians that head to Sweden for cheaper wine and groceries, Swedes buying booze in Denmark and Danes purchasing their beer in Germany.

The point to all of this? Taxes affect behavior and economic decision-making. While too many on the political right think that economic growth is a product of tax policy alone, the left's enthusiasm for higher taxes suggests that it is in denial about people's sensitivity to taxes and their adverse impact on economic activity.