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Consumer Response to Cigarette Excise Tax Changes

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  • Lesley Chiou
  • Erich Muehlegger

Abstract

We use a rich dataset of weekly cigarette sales to examine how consumers adapt their behavior before and after excise tax increases — whether by stockpiling or substituting between quality tiers of a product. We fnd that stockpiling primarily occurs for low-tier cigarettes. In the short term, consumers shift from high-tier to low-tier cigarettes, presumably to maintain current consumption. However, in the long term, tax increases are associated with substitution toward high-tier cigarettes. In the long term, average levels of tar, nicotine, and carbon monoxide consumed per pack rises, as consumers substitute across tiers and brands, suggesting a long term negative impact on health outcomes.

Suggested Citation

  • Lesley Chiou & Erich Muehlegger, 2014. "Consumer Response to Cigarette Excise Tax Changes," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 621-650, September.
  • Handle: RePEc:ntj:journl:v:67:y:2014:i:3:p:621-650
    DOI: 10.17310/ntj.2014.3.05
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    5. Fage, Bradley & Vasilev, Aleksandar, 2021. "Understanding the effect of a Soft Drinks Industry Levy on Consumer Well-Being in the UK: First Estimates," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, issue forthcomi.
    6. Erik Nesson, 2012. "The Distributional Effects of Tobacco Control Policies On Adult Smoking Behavior," Working Papers 201207, Ball State University, Department of Economics, revised Jun 2012.
    7. Hyunchul Kim & Dongwon Lee, 2021. "Racial demographics and cigarette tax shifting: evidence from scanner data," Empirical Economics, Springer, vol. 61(2), pages 1011-1037, August.
    8. Richard M. Bird, 2015. "Tobacco and Alcohol Excise Taxes for Improving Public Health and Revenue Outcomes: Marrying Sin and Virtue?," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper1508, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
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    More about this item

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

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