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 -