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

67 Pages Posted: 1 Jun 2021

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

Multiple version iconThere are 2 versions of this paper

Date Written: April 2021

Abstract

This paper estimates 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 NielsenIQ Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally, and develop a method to standardize e-cigarette taxes since adopting localities have taxed these products in heterogeneous ways. We estimate a tax-to-price pass-through rate of 1.44 and a Herfindahl–Hirschman Index of 0.246 for e-cigarette retail purchases, indicating a moderately to highly concentrated market structure theoretically linked to tax over-shifting. We then calculate an e-cigarette own-price elasticity of -1.30 and positive cross-price elasticities of demand between e-cigarettes and cigarettes, suggesting they are economic substitutes. Other analyses explore heterogeneity in tax and price responses across flavored and non-flavored e-cigarettes and cigarettes.

Keywords: taxation, e-cigarettes, cigarettes, pass-through rate, regulation

JEL Classification: H2; I1

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 (April 2021). Andrew Young School of Policy Studies Research Paper Series Forthcoming, Available at SSRN: https://ssrn.com/abstract=3856776 or http://dx.doi.org/10.2139/ssrn.3856776

Chad D. Cotti

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 (Contact Author)

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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