The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data

60 Pages Posted: 11 Feb 2020

See all articles by Chad D. Cotti

Chad D. Cotti

University of Wisconsin - Oshkosh

Charles Courtemanche

University of Kentucky

Catherine Maclean

Temple University

Erik Nesson

Ball State University - Department of Economics

Michael Pesko

Georgia State University - Department of Economics

Nathan Tefft

Bates College

Date Written: January 2020

Abstract

We estimate effects of e-cigarette taxes enacted in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. We use Nielsen Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally. We develop a method to standardize e-cigarette taxes as adopting localities have taxed these products in heterogeneous ways. We estimate a tax-to-price pass-through rate of 1.5. We calculate a Herfindahl–Hirschman Index of 0.245 for e-cigarette retail purchases, indicating a moderately to highly concentrated market that has been theoretically linked to over-shifting of taxes. We then calculate an e-cigarette own-price elasticity of -1.3 and positive cross-price elasticities of demand between e-cigarettes and traditional cigarettes, suggesting an economic substitutionary relationship. We also find that taxes disproportionately reduce flavored e-cigarette sales and cause large substitution toward mentholated traditional cigarettes.

Suggested Citation

Cotti, Chad D. and Courtemanche, Charles and Maclean, Catherine and Nesson, Erik and Pesko, Michael and Tefft, Nathan, The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data (January 2020). NBER Working Paper No. w26724, Available at SSRN: https://ssrn.com/abstract=3535316

Chad D. Cotti (Contact Author)

University of Wisconsin - Oshkosh ( email )

800 Algoma Blvd
Oshkosh, WI WI 54901
United States

Charles Courtemanche

University of Kentucky ( email )

Catherine Maclean

Temple University ( email )

Philadelphia, PA 19122
United States

Erik Nesson

Ball State University - Department of Economics ( email )

Muncie, IN 47306-0340
United States

Michael Pesko

Georgia State University - Department of Economics ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

Nathan Tefft

Bates College ( email )

Lewiston, ME 04240
United States

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