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Corrective Taxes and Cigarette Characteristics

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  • Paul Calcott
  • Vladimir Petkov

Abstract

If cigarette design was exogenous, inefficiencies arising from smoking could be addressed either with a tax per packet or with an ad valorem tax. However, it is well known that the consequences of these two instruments differ when product characteristics are endogenous. We consider three such characteristics: nicotine, tar, and flavor. Implementation of the first‐best social optimum typically requires the capacity to tax or regulate harmful ingredients. Without such a capacity, the next‐best policy often combines a per‐unit tax on cigarettes with an ad valorem subsidy. Copyright © 2015 John Wiley & Sons, Ltd.

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  • Paul Calcott & Vladimir Petkov, 2016. "Corrective Taxes and Cigarette Characteristics," Health Economics, John Wiley & Sons, Ltd., vol. 25(7), pages 844-859, July.
    • Handle: RePEc:wly:hlthec:v:25:y:2016:i:7:p:844-859
    DOI: 10.1002/hec.3188
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    References listed on IDEAS

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    6. Sobel, Russell S & Garrett, Thomas A, 1997. "Taxation and Product Quality: New Evidence from Generic Cigarettes," Journal of Political Economy, University of Chicago Press, vol. 105(4), pages 880-887, August.
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    Cited by:

    1. Paul Calcott & Vladimir Petkov, 2023. "Choosing between imperfect proxies for a corrective tax," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(2), pages 245-275, April.

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