The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data
48 Pages Posted: 11 Feb 2020
Date Written: January 2020
We explore the effect 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 the Nielsen Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally. We calculate a Herfindahl–Hirschman Index of 0.251 for e-cigarette retail purchases, indicating high market concentration, and a tax-to-price pass-through rate of 1.6. We then calculate an e-cigarette own-price elasticity of -1.5 and a positive cross-price elasticity of demand between e-cigarettes and traditional cigarettes of 0.9, suggesting that e-cigarettes and traditional cigarettes are economic substitutes. We simulate that for every one standard e-cigarette pod (a device that contains liquid nicotine) of 0.7 ml no longer purchased as a result of an e-cigarette tax, the same tax increases traditional cigarettes purchased by 6.4 extra packs. We also develop a method to standardize e-cigarette taxes as adopting localities have taxed these products in heterogeneous ways.
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