Vertical Equity Consequences of Very High Cigarette Tax Increases: If the Poor are the Ones Smoking, How Could Cigarette Tax Increases be Progressive?

Greg Colman, Dahlia K. Remler

NBER Working Paper No. 10906
Issued in November 2004
NBER Program(s):   HE   PR

Cigarette smoking is concentrated among low income groups. Consequently, cigarette taxes are considered regressive. However, if poorer individuals are much more price sensitive than richer individuals, then tax increases would reduce smoking much more among the poor and their cigarette tax expenditures as a share of income would rise by much less than for the rich. Warner (2000) said this phenomenon would make cigarette tax increases progressive. We test this empirically. Among low-, middle-, and high-income, we estimate total price elasticities of -0.37, -0.35, and -0.20, respectively. We find that cigarette tax increases are not close to progressive using both tax expenditure-based and traditional welfare measures. This finding is robust to cross-border purchasing, generic cigarettes, and substantial external effects. However, we find that taxes can be progressive under some behavioral economic models (Gruber & Koszegi, 2004) but that these may only apply to a small share of smokers.

download in pdf format
   (243 K)

email paper

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

This paper is available as PDF (243 K) or via email.

This paper was revised on November 21, 2007

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w10906

Published: Gregory J. Colman & Dahlia K. Remler, 2008. "Vertical equity consequences of very high cigarette tax increases: If the poor are the ones smoking, how could cigarette tax increases be progressive?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 27(2), pages 376-400. citation courtesy of

Users who downloaded this paper also downloaded these:
Evans, Ringel, and Stech Tobacco Taxes and Public Policy to Discourage Smoking
Gruber and Koszegi w8777 A Theory of Government Regulation of Addictive Bads: Optimal Tax Levels and Tax Incidence for Cigarette Excise Taxation
Goolsbee, Lovenheim, and Slemrod w15612 Playing With Fire: Cigarettes, Taxes and Competition From the Internet
Callison and Kaestner w18326 Do Higher Tobacco Taxes Reduce Adult Smoking? New Evidence of the Effect of Recent Cigarette Tax Increases on Adult Smoking
Lyon and Schwab w3932 Consumption Taxes in a Life-Cycle Framework: Are Sin Taxes Regressive?
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us