Cigarette Tax Pass-Through by Product Characteristics: Evidence from Nielsen Retail Scanner Data

Abstract

We used Nielsen store-level scanner data on cigarette prices from convenience stores over the period 2011-2012 to measure the incidence of cigarette excise taxes. We found that cigarette taxes were more than fully passed through to retail prices on average, suggesting consumers pay excess burden and market power exists in the cigarette industry. Utilizing information on the attributes of cigarette products, we demonstrated that tax incidence varied by brand and package size: pass-through rates for premium brands and carton-packaged cigarettes are higher than those for discount brands and cigarettes in packs, respectively, indicating possibilities of different demand elasticities across product tiers.

Keywords: cigarette, excise tax, tax incidence, Nielsen ScanTrack

JEL Classification: H22, H25, H71, L66