The Incidence of Tobacco Taxation: Evidence from Geographic Micro-Level Data

46 Pages Posted: 30 Sep 2008

See all articles by Andrew Hanson

Andrew Hanson

Marquette University- Department of Economics

Ryan S. Sullivan

Syracuse University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 2008

Abstract

This paper uses a recent increase in the state of Wisconsin's tobacco tax as a natural experiment to measure the economic incidence of tobacco taxation. We estimate the economic incidence of tobacco taxation using micro level data on cigarette prices collected from retail locations in Wisconsin and states that share its border. We find that Wisconsin's $1.00 increase in tobacco tax was over-shifted to consumers; they pay the entire amount of the tax as well as a premium of between $0.08 and $0.17 per pack of cigarettes. We use geo-coded data to test if the incidence of the tobacco tax in Wisconsin is different for retail locations near another state's border (where taxation is different). We find that retail locations near another state's border still pass along the entire amount of the tax to consumers, but the premium charged over the amount of the tax is reduced by between 13 and 54 percent depending on the distance in question and the econometric specification.

Suggested Citation

Hanson, Andrew and Sullivan, Ryan S., The Incidence of Tobacco Taxation: Evidence from Geographic Micro-Level Data (September 2008). Andrew Young School of Policy Studies Research Paper Series No. 08-30. Available at SSRN: https://ssrn.com/abstract=1275402 or http://dx.doi.org/10.2139/ssrn.1275402

Andrew Hanson (Contact Author)

Marquette University- Department of Economics ( email )

P.O. Box 1881
Milwaukee, WI 53201-1881
United States

Ryan S. Sullivan

Syracuse University - Department of Economics ( email )

Syracuse, NY 13244-1020
United States

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