The Potential for Using Excise Taxes to Reduce Smoking / Eugene M. Lewit, Douglas Coate.

By:

Lewit, Eugene M

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w0764.Publication details: Cambridge, Mass. National Bureau of Economic Research 1981.Description: 1 online resource: illustrations (black and white)Subject(s):

H - Public Economics

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Abstract: We examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes. Using information on individual smoking behavior for a sample of adults in the 1976 Health Interview Survey, we estimate the adult price elasticity of demand for cigarettes to be -.45. Moreover, we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to begin smoking regularly rather than via adjustments in the quantity of cigarettes smoked by smokers. It follows that, if future reductions in cigarette smoking are desired, Federal excise tax policy can be a potent tool to accomplish this goal, but only in the long run. An excise tax increase, if maintained in real terms, would discourage smoking participation by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature. In the short run however, the impact of an excise tax increase on aggregate cigarette consumption would be relatively small.

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Previous	nber w0761 The Index of Leading Indicators: "Measurement without Theory," Twenty-Five Years Later /	nber w0762 The Holding Period Distinction of the Capital Gains Tax /	nber w0763 Partial Retirement and the Analysis of Retirement Behavior /	nber w0764 The Potential for Using Excise Taxes to Reduce Smoking /	nber w0765 Low-Cost Student Labor: The Use and Effects of the Subminimum Wage Provisions for Full-time Students /	nber w0766 Exchange Rate Determination and the Demand for Money /	nber w0767 Employee Valuation of Pension Claims and the Impact of Indexing Initiatives /	Next

September 1981.

We examine the potential for reducing cigarette smoking through increases in cigarette excise taxes by estimating the price elasticity of demand for cigarettes. Using information on individual smoking behavior for a sample of adults in the 1976 Health Interview Survey, we estimate the adult price elasticity of demand for cigarettes to be -.45. Moreover, we find that price has its greatest effect on the smoking behavior of young males and that it operates primarily on the decision to begin smoking regularly rather than via adjustments in the quantity of cigarettes smoked by smokers. It follows that, if future reductions in cigarette smoking are desired, Federal excise tax policy can be a potent tool to accomplish this goal, but only in the long run. An excise tax increase, if maintained in real terms, would discourage smoking participation by successive cohorts of young adults and those reduced smoking levels would be reflected in aggregate smoking as these cohorts mature. In the short run however, the impact of an excise tax increase on aggregate cigarette consumption would be relatively small.