The Economics of Tobacco Regulation: A Comprehensive Review

Abstract

Tobacco regulation has been a major component of health policy in the developed world since the UK Royal College of Physicians’ and the US Surgeon General’s reports in the 1960s. Such regulation, which has intensified in the past two decades, includes cigarette taxation, place-based smoking bans in areas ranging from bars and restaurants to workplaces, and regulations designed to make tobacco products less desirable. More recently, the availability of alternative products, most notably e-cigarettes, has increased dramatically, and these products are just starting to be regulated. Despite an extensive body of research on tobacco regulations, there remains substantial debate regarding their effectiveness, and ultimately, their impact on economic welfare. We provide the first comprehensive review of the state of research in the economics of tobacco regulation in two decades. (JEL D62, H25, H26, I12, K32, L51, L66)

The effects of e-cigarette taxes on e-cigarette prices and tobacco product sales: Evidence from retail panel data

“…These coefficient estimates translate into own-price elasticities of roughly -2.2 and -0.4, respectively. 24 Overall, the cigarette price elasticities estimated in the reduced form and instrumental variable models are in line with both the implied price elasticities in the reduced form models and many previous estimates of the price elasticity of demand for cigarettes (Chaloupka and Warner 2000, DeCicca et al 2018, DeCicca, Kenkel, and Lovenheim 2020. By showing comparability between implied price elasticity estimates from reduced form models and price elasticity estimates from instrumental variable models that has the additional assumption of the exclusion restriction (i.e., taxes influence sales only through prices), this suggests limited influence of other factors that may be affected by e-cigarette taxes (as pointed out by Rees-Jones and Rozema ( 2019)), such as risk perceptions (Abouk et al 2021;Abouk et al 2022), lobbying, and other tobacco control efforts.…”

Effect of Cigarette Prices on Cigarette Consumption in Indonesia: Myopic and Rational Addiction Studies

“…In general, the data used in empirical studies of cigarette consumption are divided into aggregate data on cigarette consumption (sales-based) and data on the level of individuals or households obtained from surveys (DeCicca et al, 2020). According to IARC (2011), each data source has its strengths, but some weaknesses pose challenges for researchers to accurately estimate the demand for tobacco, especially cigarettes.…”

“…Using aggregated data from official statistics on cigarette sales or aggregated excise data from the Government as a proxy for consumption is very useful in measuring the overall impact of cigarette excise and prices on cigarette consumption. The aggregate excise data accurately records all sales of tobacco products that pay excise duty; therefore, this data has no measurement errors due to self-reports (DeCicca et al, 2020). The use of aggregated data may result in measurement errors in dependent variables if opportunities for tax avoidance exist.…”

“…Unlike the previous study, which used household panel data, this study used administrative data as aggregate macro data on cigarette consumption for the 2015-2020 period sourced from the Government. This data has the advantage of survey data at the individual level because it does not have measurement errors due to self-reports (DeCicca et al 2020). In addition, unlike the previous study, this study uses the theory of rational addiction pioneered by Becker & Murphy (1988), which was refined by Chaloupka (1991), as a reference in creating a dynamic specification model that considers the characteristics of cigarettes as addictive goods.…”

Are menthol smokers different? An economic perspective

“…The sources of the remaining discrepancy are not obvious. DeCicca et al (2022) provides additional comparisons of U.S. smoking rates across several national data sets. 2 Nicotine is the addictive component of tobacco smoke, while tar consists of the byproducts of combustion and includes carcinogenic and toxic chemicals.…”