The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data
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NBER Working Paper No. 26724
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.
Document Object Identifier (DOI): 10.3386/w26724