Cigarette Taxes and Smoking: Will Higher Taxes Yield a Public Benefit?
In this article, we summarize a study we conducted that focuses on the effect of recent, large cigarette tax increases on the smoking behavior of adults ages 18–74.
In this article, we summarize a study we conducted that focuses on the effect of recent, large cigarette tax increases on the smoking behavior of adults ages 18–74. Estimates from our study suggest that the association between cigarette taxes and either smoking participation or number of cigarettes smoked is small, negative, and not usually statistically significant. In terms of a price elasticity of demand, our estimates imply an elasticity of –0.065, which is one-fifth to one-tenth the size of the widely cited estimates offered by the CTCRE. Our substantially lower estimates of the responsiveness of cigarette consumption to changes in taxes (or prices) alter the basic cost and benefit calculation of cigarette taxes. For example, our estimates suggest that a $1 increase in federal cigarette taxes, as proposed by President Obama in his last budget, would reduce smoking by less than 1 percent. In sum, our study suggests that future cigarette tax increases will have relatively few public health benefits, and the justification of future taxes should be based on the public finance aspects of cigarette taxes such as the regressiveness, volatility, and rate of revenue growth associated with those taxes.