The Potential for Using Excise Taxes to Reduce Smoking

42 Pages Posted: 19 Mar 2001 Last revised: 5 Aug 2010

See all articles by Eugene M. Lewit

Eugene M. Lewit

Center for the Future of Children

Douglas Coate

Newark College of Arts & Sciences - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1981

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.

Suggested Citation

Lewit, Eugene M. and Coate, Douglas, The Potential for Using Excise Taxes to Reduce Smoking (September 1981). NBER Working Paper No. w0764. Available at SSRN: https://ssrn.com/abstract=228074

Eugene M. Lewit (Contact Author)

Center for the Future of Children ( email )

300 Second Street, Suite 102
Los Altos, CA 94022
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(415) 948-3696 (Phone)
(415) 948-6498 (Fax)

Douglas Coate

Newark College of Arts & Sciences - Department of Economics ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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