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High‐resolution behavioral economic analysis of cigarette demand to inform tax policy
Author(s) -
MacKillop James,
Few Lauren R.,
Murphy James G.,
Wier Lauren M.,
Acker John,
Murphy Cara,
Stojek Monika,
Carrigan Maureen,
Chaloupka Frank
Publication year - 2012
Publication title -
addiction
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.424
H-Index - 193
eISSN - 1360-0443
pISSN - 0965-2140
DOI - 10.1111/j.1360-0443.2012.03991.x
Subject(s) - economics , tax revenue , tax credit , ad valorem tax , tax policy , value added tax , consumption (sociology) , demographics , tax reform , revenue , public economics , demographic economics , demography , social science , accounting , sociology
Aims Novel methods in behavioral economics permit the systematic assessment of the relationship between cigarette consumption and price. Towards informing tax policy, the goals of this study were to conduct a high‐resolution analysis of cigarette demand in a large sample of adult smokers and to use the data to estimate the effects of tax increases in 10 US States. Design In‐person descriptive survey assessment. Setting Academic departments at three universities. Participants Adult daily smokers (i.e. more than five cigarettes/day; 18+ years old; ≥8th grade education); n = 1056. Measurements Estimated cigarette demand, demographics, expired carbon monoxide. Findings The cigarette demand curve exhibited highly variable levels of price sensitivity, especially in the form of ‘left‐digit effects’ (i.e. very high price sensitivity as pack prices transitioned from one whole number to the next; e.g. $5.80–6/pack). A $1 tax increase in the 10 states was projected to reduce the economic burden of smoking by an average of $530.6 million (range: $93.6–976.5 million) and increase gross tax revenue by an average of 162% (range: 114–247%). Conclusions Tobacco price sensitivity is non‐linear across the demand curve and in particular for pack‐level left‐digit price transitions. Tax increases in US states with similar price and tax rates to the sample are projected to result in substantial decreases in smoking‐related costs and substantial increases in tax revenues.