The Effect of Cigarette Prices on Cigarette Sales: Exploring Heterogeneity in Price Elasticities at High and Low Prices

John A. Tauras, Michael F. Pesko, Jidong Huang, Frank J. Chaloupka, Matthew C. Farrelly

NBER Working Paper No. 22251
Issued in May 2016
NBER Program(s):Health Economics

Numerous studies have examined the effect of cigarette prices on cigarette consumption. These studies either evaluate the price elasticity of demand for each observation and report the average price elasticity across all observations or report the price elasticity of demand at the mean of the price variable. Policy makers rely on these average price elasticity estimates for public health and revenue generation purposes. The use of an average price elasticity may yield misleading predictions given the substantial variation in cigarette prices between states. This research is the first econometric study to examine the price elasticity of cigarette demand at different price levels. We use aggregate state-level data for years 1991 – 2012 and employ generalized linear models with log link and gamma distribution to estimate cigarette demand equations. We find that the absolute value of the price elasticity of demand monotonically increases with price. The findings from this study will be valuable to policymakers contemplating the use of cigarette excise taxes to reduce cigarette consumption or to generate revenue.

download in pdf format
   (179 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.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22251

Users who downloaded this paper also downloaded* these:
Pesko, Tauras, Huang, and Chaloupka w22296 The Influence of Geography and Measurement in Estimating Cigarette Price Responsiveness
Wang, Merriman, and Chaloupka w22577 Relative Tax Rates, Proximity and Cigarette Tax Noncompliance: Evidence from a National Sample of Littered Cigarette Packs
Huang and Chaloupka w18026 The Impact of the 2009 Federal Tobacco Excise Tax Increase on Youth Tobacco Use
Marti, Buckell, Maclean, and Sindelar w22079 To ‘Vape’ or Smoke? A Discrete Choice Experiment Among U.S. Adult Smokers
Chaloupka, Peck, Tauras, Xu, and Yurekli w16287 Cigarette Excise Taxation: The Impact of Tax Structure on Prices, Revenues, and Cigarette Smoking
NBER Videos

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

Contact Us