Friday, January 05, 2007
Heavy Smokers and Cigarette Taxes
Classes at the University of Chicago began this week, and in the first 'Public Policy Analysis' class of the quarter I asked the students what effects they might expect from an increase in cigarette taxes of 50 cents per pack. (Surely I had my reasons?) I anticipated answers about higher cigarette retail prices, lower cigarette consumption, a switch to higher quality cigarettes, reductions in the consumption of complements (alcohol?), increases in the consumption of substitutes (snus!; marijuana?), more smuggling from low-taxed jurisdictions, more intense smoking of those cigarettes that are consumed, and shorter cigarette butts littering the ground. One student suggested that light smokers would probably reduce their consumption, but that heavy smokers would just pay the higher prices, and continue to smoke their 2 packs a day or whatever. My less-than-gracious response, alas, was (as I recall) that the student's claim was "plausible, common, and wrong."
After the class I began to wonder if I really had good grounds for my position. In general with respect to vice goods, I think there is solid evidence that even addicts decrease their consumption in the face of price rises. But what about in the specific case of cigarettes? A quick check on the web indicates that my intuiton (or memory?) seems to hold up, for once: heavy smokers on average cut back in the face of cigarette tax increases, with the average decline reflecting both cesssation by some previously heavy smokers and decreased consumption among those who continue to smoke. But the evidence that I have at hand, either via the web or in my vice library (everyone has a vice library, no?), still falls somewhat short of conclusive. This study on New York City, for instance, covers a time period when restrictive measures beyond higher taxes were being implemented, and to get the "higher taxes cause heavy smokers to cut back" result requires some, well, extrapolation. This study on Australia provides somewhat more direct evidence, while still being less than fully determinative.