The Influence of Geography and Measurement in Estimating Cigarette Price Responsiveness

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-044

35 Pages Posted: 25 May 2016

See all articles by Michael Pesko

Michael Pesko

Georgia State University - Department of Economics

John A. Tauras

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

Jidong Huang

School of Public Health, Georgia State University

Frank J. Chaloupka

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

Multiple version iconThere are 2 versions of this paper

Date Written: May 23, 2016

Abstract

We use data from the 2006-07 and 2010-11 waves of the Tobacco Use Supplement of the Current Population Survey to calculate cigarette price elasticities that compensate for within-state cigarette prices, which includes variation from the local tax environment. We use four state-level cigarette price measures and two sub-state-level cigarette price measures. For the two local price measures, we exploit month specific changes in these two prices in 446 sub-state areas of the United States. We document substantial variation in within-state prices, and we calculate that this variation approximately triples estimates of cigarette price responsiveness compared to using state-level prices. When using local prices, we calculate that a 10% rise in cigarette prices reduces cigarette consumption by a mean of 2.5%, which ranges from a 1.7% reduction at a price level $3 to a 5.6% reduction at a price level of $9. Our results suggest an important role for the local tax environment in studies of cigarette price responsiveness.

Keywords: tobacco use, cigarette excise taxes, price responsiveness, elasticities

JEL Classification: I12, I18, H20

Suggested Citation

Pesko, Michael and Tauras, John A. and Huang, Jidong and Chaloupka, Frank J., The Influence of Geography and Measurement in Estimating Cigarette Price Responsiveness (May 23, 2016). Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-044, Available at SSRN: https://ssrn.com/abstract=2783428 or http://dx.doi.org/10.2139/ssrn.2783428

Michael Pesko (Contact Author)

Georgia State University - Department of Economics ( email )

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John A. Tauras

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

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Jidong Huang

School of Public Health, Georgia State University ( email )

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Frank J. Chaloupka

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

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