Working Paper: NBER ID: w26724
Authors: Chad D. Cotti; Charles J. Courtemanche; Johanna Catherine Maclean; Erik T. Nesson; Michael F. Pesko; Nathan Tefft
Abstract: We estimate the effect of e-cigarette tax rates on e-cigarette prices, e-cigarette sales, and sales of other tobacco products using NielsenIQ Retail Scanner data from 2013 to 2019. We find that 90% of e-cigarette taxes are passed on to consumer retail prices. We then estimate reduced form and instrumental variables regressions to examine the effects of e-cigarette and cigarette taxes and prices on sales. We calculate an e-cigarette own-price elasticity of -2.2 and particularly large elasticity of demand for flavored e-cigarettes. Further, we document a cigarette own-price elasticity of -0.4 and positive cross-price elasticities of demand between e-cigarettes and cigarettes, suggesting economic substitution.
Keywords: E-cigarette taxes; Tobacco product sales; Elasticity of demand; Public health policy
JEL Codes: I12; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| E-cigarette taxes (H26) | consumer retail prices (L81) |
| 100% increase in e-cigarette taxes (H29) | 90% increase in e-cigarette prices (D49) |
| 1% increase in e-cigarette prices (D49) | 2.2% decrease in quantity demanded (D11) |
| 1% increase in price of e-cigarettes (D49) | 2.2% decrease in quantity demanded for e-cigarettes (D12) |
| 1% increase in price of cigarettes (D49) | 0.4% decrease in quantity demanded for cigarettes (D12) |
| 100% increase in e-cigarette prices (D49) | increase in cigarette sales (H27) |