We study the effects of traditional cigarette and e-cigarette taxes on use of these products among adults in the United States. Data are drawn from the Behavioral Risk Factor Surveillance System and National Health Interview Survey over the period 2011 to 2018. Using two-way fixed effects models, we find evidence that higher traditional cigarette tax rates reduce adult traditional cigarette use and increase adult e-cigarette use. Similarly, we find that higher e-cigarette tax rates increase traditional cigarette use and reduce e-cigarette use. Cross-tax effects imply that the products are economic substitutes. Our results suggest that a proposed national e-cigarette tax of $1.65 per milliliter of vaping liquid would raise the proportion of adults who smoke cigarettes daily by approximately 1 percentage point, translating to 2.5 million extra adult daily smokers compared to the counterfactual of not having the tax.
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Throughout the paper, we refer to the act of smoking as exclusive to traditional cigarette use. We refer to the act of vaping as consuming nicotine-containing e-cigarettes. E-cigarettes are also referred to as e-cigs, e-hookahs, electronic nicotine delivery systems (ENDS), vape pens, and vapes. There are (broadly) three types of e-cigarettes: (1) disposable single-use products, (2) kits that include a rechargeable device and cartridges containing liquid nicotine, and (3) tank or pod systems used to vaporize liquid nicotine. In this paper, we follow the U.S. Surgeon General’s convention in referring to all of these products as e-cigarettes (U.S. Department of Health and Human Services 2016).
While tax rates are arguably not as directly determined by demand as prices, they are nonetheless established within the state’s political economy and thus not purely exogenous (Besley and Case 2000).
Though our focus here is on prime age adults, we note that there is also a literature using quasi-experimental methods to estimate the tax elasticity of demand for traditional cigarettes among youth (DeCicca et al. 2002; Carpenter and Cook 2008; Hansen et al. 2017; Courtemanche and Feng 2018) and older adults (DeCicca and McLeod 2008; Maclean et al. 2016).
These prices include excise taxes but do not include sales taxes.
Additionally, several studies evaluate the effect of e-cigarette price variation on sales or use of e-cigarettes and/or traditional cigarettes (Huang et al. 2018; Zheng et al. 2017; Stoklosa et al. 2016; Pesko and Warman 2017; Pesko et al. 2018; Cantrell et al. 2019; Saffer et al. 2018; Marti et al. 2019; Pesko et al. b). All of these studies, with the exception of Cantrell et al. (2019), show that e-cigarette sales or use declines following a price or tax increase. Several studies provide evidence that traditional cigarettes and e-cigarettes are economic substitutes (Zheng et al. 2017; Stoklosa et al. 2016; Pesko and Warman 2017; Cantrell et al. 2019), with none finding evidence to support the hypothesis that the two products are economic complements.
We begin our study period in 2011 due to a change in the BRFSS survey frame. Prior to 2011, the BRFSS, a telephone survey, conducted surveys using landlines. Beginning in 2011, cellphones were added to the survey frame to better capture a sample that represented the U.S. population. This change in survey frame led to a compositional shift in survey respondents, and thus we follow CDC recommendations and do not combine pre- and post-2011 data. In addition, the focus on relatively recent years enables us to isolate the period in which e-cigarettes were widely available in U.S. tobacco product markets, which is our main contribution to the traditional cigarette tax elasticity literature.
The public use BRFSS includes geographic information on states but not sub-state localities. The finest geographic area recorded in the public use NHIS is the region.
E-cigarette use questions were part of the core module fielded in all states in 2016 and 2017 and were part of an optional module fielded in 32 states in 2018.
This variable is included to control for differences in survey design. For instance, the BRFSS is a telephone survey while the NHIS is a face-to-face survey.
Both Chicago and Cook County have adopted an e-cigarette tax. We assume that the earlier tax in Chicago affects all of Cook County, since we cannot separate Chicago residents from residents of the rest of Cook County in our data.
The American Non-Smokers Rights Foundation tracks when municipalities, counties, and states pass indoor air laws for vaping or smoking in different venues. These comprehensive data have been used in several papers (McGeary et al. 2020; Abouk and Adams 2017; Cotti et al. 2018). We use this information to create two separate measures for the share of the population in each county covered by indoor smoking and indoor vaping restrictions for private workplaces, restaurants, or bars. We weight laws applying to bars, restaurants, and private workplaces equally. For indoor smoking restrictions, we also consider laws applying to only part of the establishment (but not the full establishment) with ½ weight. Partial laws are uncommon for indoor vaping restrictions.
We thank Rosalie Pacula for sharing an updated version of the marijuana decriminalization variable with us.
Fourteen states passed a cigarette excise tax increase of ≥ $0.50 during the study period, and no states passed more than two such increases. Due to local taxes, both Cook County and Philadelphia County had more than one $0.50 excise tax increase. In those cases, we use the first large tax increase to define the ‘event’ in our event study.
Data is only available through 2017 as of the writing of this paper; therefore, we use 2017 SEER values for 2018 weights. Details available on request.
For current smoking, we use the traditional cigarette tax coefficient estimated listed in the first column of Table 2 (−0.0012), multiply this number by the average traditional cigarette tax for adopting localities ($1.51 from Table 1), and then divide this product by the average traditional cigarette use for adopting localities (0.156 from Table 1). Thus, the exact calculation is as follows: −0.0012 * (1.54/0.155) = −0.012. For daily smoking, we follow a similar procedure and the exact calculation is as follows: −0.0062 * (1.54/0.112) = −0.085.
Given that the vast majority of our e-cigarette tax variation primarily comes from tax introductions rather than tax increases, we are unable to calculate an e-cigarette tax elasticity because the percent change in the tax is undefined.
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We thank Michael Grossman, Henry Saffer, Keisha Solomon, and session participants at the Association for Public Policy and Management Fall Research Conference for helpful comments. We thank Amy Fontinelle for proofreading the manuscript.
Research reported in this publication was supported by the National Institute on Drug Abuse of the National Institutes of Health under Award Number R01DA045016 (PI: Michael F. Pesko). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Institutes of Health.
The research in this paper was conducted while the authors were Special Sworn Status researchers of the U.S. Census Bureau at the Atlanta Research Data Center. Research results and conclusions expressed are those of the authors and do not necessarily reflect the views of the U.S. Census Bureau or the National Center for Health Statistics. The results have been reviewed to ensure that no confidential data are revealed.
Researcher(s) own analyses calculated (or derived) based in part on data from The Nielsen Company (U.S.), LLC and marketing databases provided through the Nielsen Datasets at the Kilts Center for Marketing Data Center at The University of Chicago Booth School of Business. The conclusions drawn from the Nielsen data are those of the researcher(s) and do not reflect the views of Nielsen. Nielsen is not responsible for, had no role in, and was not involved in analyzing and preparing the results reported herein.
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Pesko, M.F., Courtemanche, C.J. & Maclean, J.C. The effects of traditional cigarette and e-cigarette tax rates on adult tobacco product use. J Risk Uncertain 60, 229–258 (2020). https://doi.org/10.1007/s11166-020-09330-9