The effect of cigarette taxation on prices: An empirical analysis using city-level data

Listed in:

• Pricing strategies
• Tobacco industry's tactics relating to tax

Abstract

This paper uses new data collected by the author on cigarette taxation in 443 municipalities from 1990 to 2009. These data are combined with state-level price and tax information to measure the relative effects of state and local taxes on cigarette prices. The results suggest that a $1 increase in the state excise cigarette tax increases cigarette prices by $1.10 to $1.13, but that a $1 increase in city or county-level excise taxes has a significantly smaller positive effect on prices of $1.06. These findings are similar between premium and generic cigarette brands.