The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data

Chad D. Cotti, Charles J. Courtemanche, Johanna Catherine Maclean, Erik T. Nesson, Michael F. Pesko, Nathan Tefft

NBER Working Paper No. 26724
Issued in January 2020
NBER Program(s):Health Economics Program

We explore the effect of e-cigarette taxes enacted in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. We use the Nielsen Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally. We calculate a Herfindahl–Hirschman Index of 0.251 for e-cigarette retail purchases, indicating high market concentration, and a tax-to-price pass-through of 1.6. We then calculate an e-cigarette own-price elasticity of -2.6 and a positive cross-price elasticity of demand between e-cigarettes and traditional cigarettes of 1.1, suggesting that e-cigarettes and traditional cigarettes are economic substitutes. We simulate that for every one standard e-cigarette pod (a device that contains liquid nicotine in e-cigarettes) of 0.7 ml no longer purchased as a result of an e-cigarette tax, the same tax increases traditional cigarettes purchased by 6.2 extra packs.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w26724