Cigarette Excise Taxation: The Impact of Tax Structure on Prices, Revenues, and Cigarette Smoking

44 Pages Posted: 24 Aug 2010 Last revised: 4 Jul 2021

See all articles by Frank J. Chaloupka

Frank J. Chaloupka

University of Illinois at Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Richard M. Peck

University of Illinois at Chicago - Department of Economics

John A. Tauras

University of Illinois at Chicago - Department of Economics; National Bureau of Economic Research (NBER)

Xin Xu

University of Illinois at Chicago

Ayda A. Yurekli

World Health Organization

Date Written: August 2010

Abstract

The main purpose of this study is to provide empirical evidence on the effects of the cigarette excise tax structure on three outcomes: cigarette prices, government revenues, and cigarette consumption. We composed cross-sectional time-series data for 21 EU countries from year 1998 to 2007 from various data resources. We provide strong evidence that the price gap between premium and low-priced brands is larger in countries with a greater share of ad valorem tax. A 10-percent raise in the share of ad valorem tax in total excise tax leads to about a 4 to 5 percent increase in the price gap, with a smaller impact in more concentrated markets. Our estimates confirm that greater instability of government tax revenues from cigarette excise taxes can be attributed to greater reliance on the ad valorem tax and such instability increases with the growth of manufacturers' market power. We also find that greater reliance on a specific tax has greater impact on cigarette smoking, but the impact diminishes with the growth of manufacturers' market power.

Suggested Citation

Chaloupka, Frank J. and Peck, Richard M. and Tauras, John A. and Xu, Xin and Yurekli, Ayda A., Cigarette Excise Taxation: The Impact of Tax Structure on Prices, Revenues, and Cigarette Smoking (August 2010). Available at SSRN: https://ssrn.com/abstract=1662281

Frank J. Chaloupka (Contact Author)

University of Illinois at Chicago - Department of Economics ( email )

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Richard M. Peck

University of Illinois at Chicago - Department of Economics ( email )

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312-996-3344 (Fax)

John A. Tauras

University of Illinois at Chicago - Department of Economics ( email )

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Chicago, IL 60607-7121
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312-996-3344 (Fax)

National Bureau of Economic Research (NBER)

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Xin Xu

University of Illinois at Chicago ( email )

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United States

Ayda A. Yurekli

World Health Organization ( email )

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Switzerland

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