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NATIONAL BUREAU OF ECONOMIC RESEARCH
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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, Revised in August 2020
NBER Program(s):Health Economics

We estimate effects 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 Nielsen Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally. We develop a method to standardize e-cigarette taxes as adopting localities have taxed these products in heterogeneous ways. We estimate a tax-to-price pass-through rate of 1.5. We calculate a Herfindahl–Hirschman Index of 0.245 for e-cigarette retail purchases, indicating a moderately to highly concentrated market that has been theoretically linked to over-shifting of taxes. We then calculate an e-cigarette own-price elasticity of -1.3 and positive cross-price elasticities of demand between e-cigarettes and traditional cigarettes, suggesting an economic substitutionary relationship. We also find that taxes disproportionately reduce flavored e-cigarette sales and cause large substitution toward mentholated traditional cigarettes.

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Document Object Identifier (DOI): 10.3386/w26724

 
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