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The Potential for Using Excise Taxes to Reduce Smoking

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Author Info
Eugene M. Lewit
Douglas Coate
Abstract

We examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes. Using information on individual smoking behavior for a sample of adults in the 1976 Health Interview Survey, we estimate the adult price elasticity of demand for cigarettes to be -.45. Moreover, we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to begin smoking regularly rather than via adjustments in the quantity of cigarettes smoked by smokers. It follows that, if future reductions in cigarette smoking are desired, Federal excise tax policy can be a potent tool to accomplish this goal, but only in the long run. An excise tax increase, if maintained in real terms, would discourage smoking participation by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature. In the short run however, the impact of an excise tax increase on aggregate cigarette consumption would be relatively small.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 0764.

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Date of creation: Jan 1983
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Handle: RePEc:nbr:nberwo:0764

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  1. Benjamin Klein & Kevin M. Murphy & Lynne Schneider, 1981. "Governmental REgualtion of Cigarette Health Information," UCLA Economics Working Papers 200, UCLA Department of Economics. [Downloadable!]
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  2. Fujii, Edwin T, 1980. "The Demand for Cigarettes: Further Empirical Evidence and Its Implications for Public Policy," Applied Economics, Taylor and Francis Journals, vol. 12(4), pages 479-89, December.
  3. Lewit, Eugene M & Coate, Douglas & Grossman, Michael, 1981. "The Effects of Government Regulation on Teenage Smoking," Journal of Law & Economics, University of Chicago Press, vol. 24(3), pages 545-69, December.
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  4. Barzel, Yoram, 1976. "An Alternative Approach to the Analysis of Taxation," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1177-97, December. [Downloadable!] (restricted)
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