TY  - JOUR
AU  - Colman, Greg
AU  - Remler, Dahlia K
TI  - Vertical Equity Consequences of Very High Cigarette Tax Increases: If the Poor are the Ones Smoking, How Could Cigarette Tax Increases be Progressive?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10906
PY  - 2004
Y2  - November 2004
DO  - 10.3386/w10906
UR  - http://www.nber.org/papers/w10906
L1  - http://www.nber.org/papers/w10906.pdf
N1  - Author contact info:
Gregory J. Colman
Pace University
Department of Economics
41 Park Row, 11th Floor
New York, NY 10038
Tel: 212/346-1102
E-Mail: gcolman@pace.edu

Dahlia K. Remler
Marxe School of Public and International Affairs
Baruch College
City University of New York
One Bernard Baruch Way
Box D-901
New York, NY 10010
Tel: 646/660-6725
Fax: 646/660-6701
E-Mail: Dahlia.Remler@baruch.cuny.edu
AB  - 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.
ER  -