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Price Isn’t Everything: Behavioral Response around Changes in Sin Taxes

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  • Alex Rees-Jones
  • Kyle T. Rozema

Abstract

In traditional economic models, taxes change behavior by changing prices. In empirical analyses, factors other than price are thought to be relevant, but any non-price factors are usually assumed to be held constant as taxes vary. We contend that violations of this assumption are expected when laws are passed changing sin taxes. In support of this claim, we document that state-level cigarette tax increases are concomitant with increases in anti-smoking appropriations, media coverage on smoking, lobbying efforts, and place-based smoking restrictions. The influence of these non-price factors is easily confused with price effects, and we find evidence suggesting that controlling for them substantially reduces the estimated demand responsivity to the tax itself.

Suggested Citation

  • Alex Rees-Jones & Kyle T. Rozema, 2019. "Price Isn’t Everything: Behavioral Response around Changes in Sin Taxes," NBER Working Papers 25958, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:25958
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    Cited by:

    1. Cotti, Chad & Courtemanche, Charles & Maclean, Joanna Catherine & Nesson, Erik & Pesko, Michael F. & Tefft, Nathan W., 2022. "The effects of e-cigarette taxes on e-cigarette prices and tobacco product sales: Evidence from retail panel data," Journal of Health Economics, Elsevier, vol. 86(C).
    2. Alvarado, Miriam & Penney, Tarra L. & Unwin, Nigel & Murphy, Madhuvanti M. & Adams, Jean, 2021. "Evidence of a health risk ‘signalling effect’ following the introduction of a sugar-sweetened beverage tax," Food Policy, Elsevier, vol. 102(C).
    3. Rahi Abouk & Scott Adams & Bo Feng & Johanna Catherine Maclean & Michael F. Pesko, 2019. "The Effect of E-Cigarette Taxes on Pre-pregnancy and Prenatal Smoking," NBER Working Papers 26126, National Bureau of Economic Research, Inc.

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    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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