Price Isn't Everything: Behavioral Response Around Changes in Sin Taxes

Abstract

In traditional economic models, taxes change behavior by changing prices. In empirical analyses, factors other than price are thought to be relevant, but any non-price factors are usually assumed to be held constant as taxes vary. We contend that violations of this assumption are expected when laws are passed changing sin taxes. In support of this claim, we document that state-level cigarette tax increases are concomitant with increases in anti-smoking appropriations, media coverage on smoking, lobbying efforts, and place-based smoking restrictions. The influence of these non-price factors is easily confused with price effects, and we find evidence suggesting that controlling for them substantially reduces the estimated demand responsivity to the tax itself.