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Increase Taxes on E-Cigarette Causes Increases in Cigarette Sales

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"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."
Increase Taxes on E-Cigarette Causes Increases in Cigarette Sales

Raising taxes on e-cigarettes in an attempt to cut vaping may cause people to purchase more traditional cigarettes, says a new study funded by the National Institutes of Health(NIH) and conducted by a team of researchers from six universities.

The research team comprised six economists:

  • Dr. Erik Nesson at Ball State University
  • Dr. Nathan Tefft at Bates College
  • Dr. Michael Pesko at Georgia State University
  • Dr. Catherine Maclean at Temple University
  • Dr. Charles Courtemanche at the University of Kentucky
  • Dr. Chad Cotti at the University of Wisconsin Oshkosh

Using the Nielsen Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally. The study found that for every 10% increase in e-cigarette prices, e-cigarette sales drop 26%. But, the same 10% increase in e-cigarette prices causes traditional cigarette sales to jump by 11%.

“Although vaping-related illnesses are a public health concern, cigarettes continue to kill nearly 480,000 Americans each year, and several reviews support the conclusion that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults.”

“Thus, balancing e-cigarette and cigarette use will continue to be an important issue for policymakers to consider as they develop e-cigarette related tobacco control policies.”

Erik Nesson, an economics professor in the Miller College of Business at Ball State.

As of January 2020, 20 states have an e-cigarette tax, which has significantly raised the price of e-cigarettes. Additionally, Congress is considering enacting a federal tax on e-cigarettes. In late October 2019, the United States House Ways and Means Committee approved an e-cigarette tax with bipartisan support that set a national e-cigarette tax proportional to the Federal cigarette tax.

The prospect of national tax concerns studies co-author Michael Pesko, an economist from Georgia State University.

They 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. And then calculates an e-cigarette’s 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.

Researchers 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.

Michael Pesko said. “The public health impact of e-cigarette taxes, in this case, is likely negative.”

The study, “The Effects of E-Cigarette Taxes on E-Cigarette Prices and Consumption: Evidence from Retail Panel Data“, was posted today online by the National Bureau of Economic Research.

The Centers for Disease Control and Prevention found that nearly 3% of adults in the United States used e-cigarettes in 2017. The use of e-cigarettes among adolescents has grown even more rapidly, with nearly 27.5% of high school students using e-cigarettes in 2019.

More research on E-cigarettes:

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