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Do Higher Tobacco Taxes Reduce Adult Smoking? New Evidence of the Effect of Recent Cigarette Tax Increases on Adult Smoking

June 7, 2013
By Kevin Callison and Robert Kaestner

This paper uses government data from the U.S. Census Bureau's Current Population Survey to study tobacco tax changes’ effects on smoking rates.

two tumblers with liquor and a lit cigarrette

This paper, written by Grand Valley State University assistant professor of economics Kevin Callison and University of Illinois economics professor Robert Kaestner, uses government data from the U.S. Census Bureau's Current Population Survey to study tobacco tax changes’ effects on smoking rates.

Lawmakers often claim tobacco taxes significantly decrease smoking rates, but that is generally empirically untrue, Callison and Kaestner write.

“There is a general consensus among policymakers that raising tobacco taxes reduces cigarette consumption,” Callison and Kaestner write. “However, evidence that tobacco taxes reduce adult smoking is relatively sparse. For example, casual inspection of trends in tobacco taxes and tobacco use does not suggest a strong inverse relationship between taxes and consumption. … From 1990 to 1998, tobacco taxes increased by approximately 20 percent but tobacco use continued to decline at about the same rate as between 1983 and 1990. Finally, from 1998 to 2008 tobacco taxes nearly doubled and there were over 100 increases in state tobacco taxes, yet tobacco use remained on its long run trend toward less use with no noticeable break as taxes began to increase significantly.”

Cigarette taxes generally have no effect on smoking rates, Callison and Kaestner write.

“To summarize, our analysis of the association between cigarette taxes and adult cigarette use suggests that adult smoking is largely unaffected by taxes,” Callison and Kaestner write. “At best, cigarette tax increases may have a small negative association with cigarette consumption, although it is difficult to distinguish the effect from zero, and in practical terms implies that it will take very large tax increases, for example, on the order of 100 percent, to reduce smoking by 5 percent.

“This finding raises questions about claims that, at the current time, tax (price) increases on cigarettes will have an important beneficial health impact through reduced smoking,” Callison and Kaestner write. “It may be that in a time when the median federal and state cigarette tax is approximately $2.50 per pack, further increases in cigarette taxes will have little effect because the pool of smokers is becoming increasingly concentrated with those with strong preferences for smoking.”