The Effect of Cigarette Taxation on Prices

Abstract

This article combines new, author-collected tax data with data both from the American Chamber of Commerce Researchers Association cost of living index and from the Tax Burden on Tobacco to measure the relative effects of city, county, and state excise cigarette taxation on cigarette prices. The results indicate that a $1 increase in the state excise cigarette tax increases cigarette prices between $1.10 and $1.14, but that a $1 increase in a city- or county-level excise tax increases prices by $1.07. These findings are similar between premium and generic cigarette brands. Additionally, urban areas located near states with lower cigarette taxes tend to have lower cigarette prices relative to urban areas located near states with the same or higher tax rates.

Exploring Impacts of Taxes and Hospitality Bans on Cigarette Prices and Smoking Prevalence Using a Large Dataset of Cigarette Prices at Stores 2001–2011, USA

“…Price was non-linear over time and a dummy coding approach is consistent with the modeling approach of other studies [5,7,10]. For the smoking prevalence model, smoking was only somewhat non-linear thus, main results are reported using a more parsimonious model that included linear time + quadratic time + dummy variable for federal cigarette tax.…”

“…Harding (2012) used a shorter time period and found a pass-through of approximately 0.85 among a household panel and Chiou (2014) used data from supermarkets in a single municipality (the Chicago area) and found an average pass-through of 0.80 [5,28]. Other studies that reported taxes were fully passed or over-shifted onto consumers while using data from supermarkets only or fewer municipalities or price data from individual self-reports [4,8,9,10] Advantages of the dataset we used over other studies were: use of prices of specific goods rather than average price paid which may reflect substitution; included many more years of data relative [4,7,8] and offered better spatial resolution [9,10]. Our findings suggest that cigarette price varied by SES but the variation was small and in general, state cigarette taxes were equitably passed to consumers as there was no evidence that associations between state excise tax and price were different based on area-level SES or minority composition of residents near the chain stores.…”

“…In the U.S., tobacco tax policy has used indirect taxes levied on the tobacco producer or vendor (“excise taxes”). Results of prior studies have been mixed regarding whether tobacco excise taxes are in fact fully passed on to the consumer [7,8], only partially passed on [5], or over-shifted [4,6,9,10,11]. Several studies have identified geographic differences in the pass-through rate [4,5] and two studies found differences by socioeconomic status [5,6], factors which may contribute to local variation in cigarette prices.…”

The effect of excise tax increases on cigarette prices in South Africa

“…[9][10][11][12][13][14][15] Most of these studies find that excise taxes are overshifted. Our results are more nuanced.…”

“…South Africa is an important example for other countries, since it was one of the first middle-income countries to use excise tax increases as a tobacco control tool. The paper adds to the literature on excise tax pass-through, [9][10][11][12][13][14][15] but, crucially, considers a structural break in the industry's pricing reaction to excise tax increases.…”