The Effect of Cigarette Taxation on Prices: An Empirical Analysis Using Local-Level Data

Sullivan, Ryan

doi:10.2139/ssrn.1916764

Cited by 22 publications

(43 citation statements)

References 35 publications

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“…Excise tax was over-shifted to smokers of premium brands who purchased by pack outside Indian reservations: for every $1 tax increase, they paid the entire amount of the tax together with an additional premium of 7–10 cents. The estimated over-shifting is consistent with existing evidence, although our data and methodology differ substantially [22,26,31]. …”

Section: Discussionsupporting

confidence: 87%

Does every US smoker bear the same cigarette tax?

Malarcher

O’Halloran

et al. 2014

Addiction

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Aims To evaluate state cigarette excise tax pass-through rates for selected price-minimizing strategies. Design Multivariate regression analysis of current smokers from a stratified, national, dual-frame telephone survey. Setting United States. Participants A total of 16 542 adult current smokers aged 18 years or older. Measurements Cigarette per pack prices paid with and without coupons were obtained for pack versus carton purchase, use of generic brands versus premium brands, and purchase from Indian reservations versus outside Indian reservations. Findings The average per pack prices paid differed substantially by price-minimizing strategy. Smokers who used any type of price-minimizing strategies paid substantially less than those who did not use these strategies (P < 0.05). Premium brand users who purchased by pack in places outside Indian reservations paid the entire amount of the excise tax, together with an additional premium of 7–10 cents per pack for every $1 increase in excise tax (pass-through rate of 1.07–1.10, P < 0.05). In contrast, carton purchasers, generic brand users or those who were likely to make their purchases on Indian reservations paid only 30–83 cents per pack for every $1 tax increase (pass-through rate of 0.30–0.83, P < 0.05). Conclusions Many smokers in the United States are able to avoid the full impact of state excise tax on cost of smoking by buying cartons, using generic brands and buying from Indian reservations.

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Section: Discussionsupporting

confidence: 87%

Does every US smoker bear the same cigarette tax?

Malarcher

O’Halloran

et al. 2014

Addiction

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“…Specifically, we estimate that a $1 increase in cigarette taxes increases local cigarette prices by between $1.08 and $1.11, and this result is statistically significant at the one percent level in every sample. Moreover, the sample period that most closely matches previously published work (column 1, which restricts attention to 1990–2003) returns a pass-through estimate of $1.11, which is very similar to the $1.13 estimate from a model with slightly different controls reported in Sullivan and Dutkowsky (2012). 10 We also replicate the literature’s previous finding that cities nearby states with lower cigarette taxes – whose variation is driven by cigarette tax changes in the fixed-effects models – have lower cigarette prices, consistent with greater cigarette tax competition reducing prices.…”

Section: Resultssupporting

confidence: 75%

New Evidence on the Price Effects of Cigarette Tax Competition

Carpenter

Mathes

2015

Public Finance Review

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Multiple studies have shown that cigarette taxes are more than fully passed through to cigarette prices and that access to a nearby state with a lower cigarette tax also reduces local cigarette prices. We study two other sources of tax competition: nearby Native American reservations and online sales. Using quarterly data on local cigarette prices from 1976–2003, we show that the opening of a Native American casino within 25 miles of a city center is associated with a $0.016-$0.027 lower per-pack price, while a 50 percentage point increase in internet penetration is associated with a $0.22-$0.25 per-pack price reduction. These effects are not observed for other local prices for which there is no potential tax savings. Our results further our understanding of how tax competition affects local cigarette prices and provide context to studies linking Native American reservations and internet penetration to cigarette smuggling.

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“…In a relatively competitive environment, as was the case at the time, this corresponds to theoretical predictions. More recent studies-covering the United States, South Africa, Jamaica, and Ireland-find that tax increases are over-shifted to consumers (Barnett, Keeler, & Hu, 1995;Hanson & Sullivan, 2008;Howell, 2012;Keeler, Hu, Barnett, Manning, & Sung, 1996;Sullivan, 2010;van Walbeek, 2010). This is consistent with the continuing trend of industry consolidation and the increase in industry profitability despite declining sales (Gilmore et al, 2010).…”

Section: Industry Efforts To Influence Tax Policy and Industry Pricinmentioning

confidence: 54%

Price and Tax Measures and Illicit Trade in the Framework Convention on Tobacco Control: What We Know and What Research Is Required

Walbeek

Blecher

Gilmore

et al. 2012

Nicotine & Tobacco Research

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introduction: Article 6 of the Framework Convention on Tobacco Control commits Parties to use tax and price policies to reduce tobacco use, whereas Article 15 commits Parties to implement measures to eliminate the illicit trade in tobacco products. This paper identifies research gaps/needs, especially in low-and middle-income countries, which, if adequately addressed, would help in implementing Articles 6 and 15.Methods: Based on a recent comprehensive review on the impact of tax and price on tobacco consumption and a summary of reviews and narratives about the illicit tobacco market, research gaps are identified.Results: Countries have highly diverse research needs, depending on the stage of the tobacco epidemic, previous research and data availability, and making a ranking of research needs infeasible. Broad issues for further research are the following: (1) monitoring tobacco consumption, prices, and taxes, (2) assessing the effectiveness of the tax structure in generating revenue and reducing tobacco use, (3) strengthening the tax administration system in order to reduce tax evasion and tax avoidance, (4) improving our understanding of the political economy of tobacco tax policy, and (5) employing a multidisciplinary approach to assessing the magnitude of illicit tobacco trade. Conclusions:At a technical level, the case for increasing excise taxes to improve public health and increase government revenue is easily made, but the political and policy environment is often not supportive. In order to effectively impact policy, the required approach would typically make use of rigorous economic techniques, and be cognizant of the political economy of raising excise taxes. inTRoduCTionThe World Health Organization's Framework Convention on Tobacco Control (FCTC) sets out a number of measures that aim to reduce the demand for (Articles 6-14) and supply of tobacco (Articles 15-17). The focus of this paper is on Article 6, and to a lesser extent on Article 15. Article 6 (Box 1) commits the Parties to implement tax policies (and where appropriate, price policies) that aim to reduce tobacco consumption, while Article 15 (Box 2) aims to eliminate the illicit trade in tobacco products.As a framework treaty, the FCTC does not provide specific detail on best practices and how Parties should implement the treaty but rather leaves it to a series of Protocols and Guidelines which are negotiated at a later stage. Guidelines provide recommendations on the implementation and/or interpretation of treaty obligations while protocols are legally binding and introduce new obligations. A Protocol on the illicit trade in tobacco products has been negotiated and a working group to develop Guidelines for Article 6 has been established. Both the Protocol and the Guidelines are on the agenda for adoption at the Conference of the Parties in November 2012.Article 6 encourages the Parties to increase the tax on cigarettes, which would increase their retail prices, make cigarettes less affordable and thus discourage consumption. Since ...

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The Effect of Cigarette Taxation on Prices: An Empirical Analysis Using Local-Level Data

Abstract: This paper uses new data collected by the author on cigarette taxation in 443 municipalities from 1990 to 2009. These data are combined with state-level price and tax information to measure the relative effects of state and local taxes on cigarette prices.

Cited by 22 publications

References 35 publications

Does every US smoker bear the same cigarette tax?

Does every US smoker bear the same cigarette tax?

New Evidence on the Price Effects of Cigarette Tax Competition

Price and Tax Measures and Illicit Trade in the Framework Convention on Tobacco Control: What We Know and What Research Is Required

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