Working Paper: NBER ID: w0764
Authors: Eugene M. Lewit; Douglas Coate
Abstract: We examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes. Using information on individual smoking behavior for a sample of adults in the 1976 Health Interview Survey, we estimate the adult price elasticity of demand for cigarettes to be -.45. Moreover, we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to begin smoking regularly rather than via adjustments in the quantity of cigarettes smoked by smokers. It follows that, if future reductions in cigarette smoking are desired, Federal excise tax policy can be a potent tool to accomplish this goal, but only in the long run. An excise tax increase, if maintained in real terms, would discourage smoking participation by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature. In the short run however, the impact of an excise tax increase on aggregate cigarette consumption would be relatively small.
Keywords: Excise Taxes; Cigarette Consumption; Price Elasticity; Public Health
JEL Codes: I18; H23
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Excise Taxes (H29) | Reduction in Smoking Participation (J26) |
| Increase in Price (E31) | Decrease in Quantity Demanded (D11) |
| Excise Taxes (H29) | Long-term Reductions in Smoking (I12) |
| Excise Taxes (H29) | Aggregate Consumption (E21) |
| Price (D41) | Decision to Start Smoking (Young Males) (D91) |