Unintended Consequences of Cigarette Prohibition, Regulation, and Taxation
52 Pages Posted: 15 Jul 2015
Date Written: July 13, 2015
Laws that prohibit, regulate, or tax cigarettes can generate illicit markets for tobacco products. Illicit markets both reduce the efficacy of policies intended to improve public health and create harms of their own. Enforcement can reduce evasion but creates additional harms, including incarceration and violence. There is strong evidence that more enforcement in illicit drug markets can spur violence. The presence of licit substitutes, such as electronic cigarettes, has the potential to greatly reduce the size of illicit markets. We present a model demonstrating why enforcement can increase violence, show that states with higher tobacco taxes have larger illicit markets, and apply the findings to discussion of public policy toward a potential ban on menthol cigarettes. The social calculus involved in determining public policy toward tobacco cigarettes should include the harms from both consumption and control. We conclude by highlighting areas where more research is needed for effective policymaking.
Keywords: black markets, illicit markets, illicit trade in tobacco, smuggling, contraband, counterfeit goods, enforcement, violence, violent crime
JEL Classification: K42, K32, H20, I18
Suggested Citation: Suggested Citation