Vertical Equity Consequences of Very High Cigarette Tax Increases: If the Poor are the Ones Smoking, How Could Cigarette Tax Increases be Progressive?

Gregory Colman () and Dahlia K. Remler

No 10906, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Cigarette smoking is concentrated among low income groups. Consequently, cigarette taxes are considered regressive. However, if poorer individuals are much more price sensitive than richer individuals, then tax increases would reduce smoking much more among the poor and their cigarette tax expenditures as a share of income would rise by much less than for the rich. Warner (2000) said this phenomenon would make cigarette tax increases progressive. We test this empirically. Among low-, middle-, and high-income, we estimate total price elasticities of -0.37, -0.35, and -0.20, respectively. We find that cigarette tax increases are not close to progressive using both tax expenditure-based and traditional welfare measures. This finding is robust to cross-border purchasing, generic cigarettes, and substantial external effects. However, we find that taxes can be progressive under some behavioral economic models (Gruber & Koszegi, 2004) but that these may only apply to a small share of smokers.

JEL-codes: I1 (search for similar items in EconPapers)
Date: 2004-11
Note: EH PR
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published as Gregory J. Colman & Dahlia K. Remler, 2008. "Vertical equity consequences of very high cigarette tax increases: If the poor are the ones smoking, how could cigarette tax increases be progressive?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 376-400.

Downloads: (external link)
http://www.nber.org/papers/w10906.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:10906

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w10906

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().