Cigarette Taxes and the Household Budget

Michael Darden, Reginald B. Hebert, Michael Pesko and Samuel Sturm

No 33746, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effects of cigarette excise taxes on smokers’ household budgets. In a randomized survey experiment, smokers respond to hypothetical tax increases by adjusting cigarette shopping behaviors, substituting toward other tobacco products, and reducing both discretionary and human capital-related expenditures. Using Consumer Expenditure Survey data and a quasi-experimental design, we find cigarette taxes reduce smoking prevalence but increase cigarette expenditures among continuing smokers. A $1 increase in cigarette taxes causes a modest reduction in human capital-related expenditures among below-median-income smokers ($48 less per quarter). Our work uncovers important unintended consequences of cigarette taxes, particularly for low-income individuals.

JEL-codes: I10 I12 I14 I18 (search for similar items in EconPapers)
Date: 2025-05
New Economics Papers: this item is included in nep-exp, nep-hea, nep-pbe and nep-pub
Note: EH
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