Making a Smooth Exit? Menthol Bans and Cigarette Sales in Massachusetts

Abstract

Public health regulators in the United States are currently advocating for a ban on menthol-flavored cigarettes because they are believed to be more dangerous than traditional non-menthol cigarettes. However, these bans will have limited benefits if consumers are able to circumvent them. We examine this issue by evaluating the effects of a statewide menthol ban that was instituted by Massachusetts in 2020. An examination of store-level retail sales data from Massachusetts indicates that some demand shifted from menthols to non-menthols after the ban was instituted, thereby supporting the goals of the ban. However, broadening our analysis to neighboring states shows a sharp increase in menthol sales in areas just outside the Massachusetts border, thereby suggesting that many Massachusetts residents were able to get around the ban by engaging in cross-state shopping for menthol cigarettes. This cross-state shopping is damaging because it reduces the tax revenue for Massachusetts while also not yielding any positive public health benefits among its population. To provide policymakers with guidance regarding the benefits of alternative policies, we develop and estimate a structural model that accounts for heterogeneity in (i) prices across states; (ii) distances from state borders; and (iii) menthol shares across Massachusetts. We show that a statewide menthol tax might be preferable over either a statewide menthol ban or a national ban because it yields sizable reductions in smoking activity while also generating up to 14% in additional tax revenue.

Keywords: Tobacco marketing, Public policy, Menthol cigarettes, Cross-border shopping, Structural models

JEL Classification: D04, L38, M38, M31