Consumer Response to Cigarette Excise Tax Changes

Lesley Chiou and Erich Muehlegger

National Tax Journal, 2014, vol. 67, issue 3, 621-650

Abstract: We use a rich dataset of weekly cigarette sales to examine how consumers adapt their behavior before and after excise tax increases — whether by stockpiling or substituting between quality tiers of a product. We fnd that stockpiling primarily occurs for low-tier cigarettes. In the short term, consumers shift from high-tier to low-tier cigarettes, presumably to maintain current consumption. However, in the long term, tax increases are associated with substitution toward high-tier cigarettes. In the long term, average levels of tar, nicotine, and carbon monoxide consumed per pack rises, as consumers substitute across tiers and brands, suggesting a long term negative impact on health outcomes.

Date: 2014
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Related works:
Working Paper: Consumer Response to Cigarette Excise Tax Changes (2010)
Working Paper: Consumer Response to Cigarette Excise Tax Changes (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ntj:journl:v:67:y:2014:i:3:p:621-650

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