Tobacco Taxation and Cigarette and Smokeless Tobacco Substitution

Abstract

Much research has examined the effect of anti-smoking policies on the use of cigarettes, but relatively little work has examined smokeless tobacco or whether anti-tobacco policies aimed at either smokeless tobacco or cigarettes lead to substitution between these two products. Using newly compiled data on smokeless tobacco taxes, this paper finds that while these taxes lower rates of smokeless tobacco use, they substantially increase smoking among young men. For example, a ten percentage point increase in the tax on smokeless tobacco would raise the smoking rate by 5.3% percent in this group. The analysis also indicates that higher cigarette taxes raise the use of smokeless tobacco among both men and women while clean indoor air laws have no effect. Since smoking cigarettes is much more harmful than smokeless tobacco, higher taxes on smokeless tobacco are very likely to harm the health of young men.

Keywords: Taxes, Substitution, Smoking, Smokeless Tobacco, Addiction

JEL Classification: D12, H21, I12, I18