Working Paper: NBER ID: w27000
Authors: Hunt Allcott; Charlie Rafkin
Abstract: There is an active debate about how to regulate electronic cigarettes, due to uncertainty about their health effects and whether they are primarily a quit aid or a gateway drug for combustible cigarettes. We model optimal e-cigarette regulation and estimate key parameters. Using tax changes and scanner data, we estimate relatively elastic demand. A demographic shift-share identification strategy suggests limited substitution between e-cigarettes and cigarettes. We field a new survey of public health experts, who report that vaping is more harmful than previously believed. In our model’s average Monte Carlo simulation, these results imply that optimal e-cigarette taxes are higher than recent norms. However, e-cigarette subsidies may be optimal if vaping is a stronger substitute for smoking and is safer than our experts report, or if consumers overestimate the health harms from vaping.
Keywords: E-Cigarettes; Regulation; Public Health; Taxation
JEL Codes: D12; D18; D61; H21; H23; I12; I18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| e-cigarettes demand elasticity (D12) | demand is relatively elastic (D12) |
| optimal e-cigarette tax rate (H21) | higher than current norms (D63) |
| perceived health harms associated with vaping (I12) | optimal e-cigarette tax rate (H21) |
| vaping perceived as less harmful than smoking (Y10) | e-cigarette subsidies could be optimal (H23) |
| introduction of e-cigarettes (Y20) | decline in smoking rates (I12) |
| e-cigarettes are substitutes for smoking (Q42) | decline in smoking rates (I12) |