Consumer Response to Cigarette Excise Tax Changes

46 Pages Posted: 17 Oct 2010 Last revised: 24 Jun 2014

See all articles by Lesley Chiou

Lesley Chiou

Occidental College - Department of Economics

Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS)

Date Written: May 27, 2014

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 find that stockpiling primarily occurs for low-tier cigarettes. In the short-term, consumers shift from high- to low-tier cigarettes, presumably to maintain current consumption. However, in the long-term, tax increases are associated with substitution towards high-tier cigarettes. In the long-term, average levels of tar, nicotine, and carbon monoxide consumed per pack rises, as consumer substitute across tiers and brands, suggesting a long-term negative impact on health outcomes.

Keywords: Cigarette Taxation, Tax Avoidance, Cross Border Sales, Stockpiling

Suggested Citation

Chiou, Lesley and Muehlegger, Erich, Consumer Response to Cigarette Excise Tax Changes (May 27, 2014). Available at SSRN: https://ssrn.com/abstract=1693263 or http://dx.doi.org/10.2139/ssrn.1693263

Lesley Chiou (Contact Author)

Occidental College - Department of Economics ( email )

1600 Campus Road
Los Angeles, CA 90041
United States

HOME PAGE: http://www.faculty.oxy.edu/lchiou

Erich Muehlegger

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-7735 (Phone)
617-496-6886 (Fax)

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