Impact of E-cigarette Taxation on Retail Prices and Sales Volume

Electronic cigarette (e-cigarette) taxation has emerged as a key policy tool for regulating consumption and addressing public health concerns. While existing research suggests that e-cigarette taxes increase retail prices and reduce volume sales, little is known about their effects in recent years, particularly following widespread tax implementations after 2019. This study examines the impact of state-level e-cigarette taxes on retail prices and sales volume using NielsenIQ Retail Scanner Data (RSD) from 2018 to 2023. Employing a Synthetic Difference-in-Difference (SDID) framework, this analysis leverages variation in monthly tax adoption across states to estimate the causal effects of taxation on e-cigarette markets. The empirical findings indicate that 78% of the tax is passed on to consumer retail prices, leading to significant price increases but modest declines in sales volume. The estimated own price elasticity for e-cigarettes is -0.30, suggesting a relatively inelastic demand response. Additionally, the magnitude of these effects varies across states and tax structures, highlighting the heterogeneous impact of e-cigarette taxation. These findings underscore the need for well-design tax policies, as the weak consumer response may require additional measures to effectively reduce smoking (including vaping) and improve public health.