High-resolution behavioral economic analysis of cigarette demand to inform tax policy


Aims: Novel methods in behavioral economics permit the systematic assessment of the relationship between cigarette consumption and price. Towards informing tax policy, the goals of this study were to conduct a high-resolution analysis of cigarette demand in a large sample of adult smokers and to use the data to estimate the effects of tax increases in 10 US States. Design: In-person descriptive survey assessment. Setting: Academic departments at three universities. Participants: Adult daily smokers (i.e. more than five cigarettes/day; 18+ years old; ≥8th grade education); n=1056. Measurements: Estimated cigarette demand, demographics, expired carbon monoxide. Findings: The cigarette demand curve exhibited highly variable levels of price sensitivity, especially in the form of 'left-digit effects' (i.e. very high price sensitivity as pack prices transitioned from one whole number to the next; e.g. $5.80-6/pack). A $1 tax increase in the 10 states was projected to reduce the economic burden of smoking by an average of $530.6million (range: $93.6-976.5 million) and increase gross tax revenue by an average of 162% (range: 114-247%). Conclusions: Tobacco price sensitivity is non-linear across the demand curve and in particular for pack-level left-digit price transitions. Tax increases in US states with similar price and tax rates to the sample are projected to result in substantial decreases in smoking-related costs and substantial increases in tax revenues. © 2012 The Authors, Addiction © 2012 Society for the Study of Addiction.

Publication Title