High-Resolution Behavioral Economic Analysis of Cigarette Demand to Inform Tax Policy

Aims: Novel methods in behavioral economics permit the systematic assessment of the relationship between cigarette consumption and price. Toward informing tax policy, the goals of this study were to conduct a high-resolution analysis of cigarette demand in a large sample of adult smokers and to use the data to estimate the effects of tax increases in ten U.S. States.

Design: In-person descriptive survey assessment.

Setting: Academic departments at three universities.

Participants: Adult daily smokers (i.e., 5+ cigarettes/day; 18+ years old; ≥8th grade education); N = 1056.

Measurements: Estimated cigarette demand, demographics, expired carbon monoxide.

Findings: The cigarette demand curve exhibited highly variable levels of price sensitivity, especially in the form of ‘left-digit effects’ (i.e., very high price sensitivity as pack prices transitioned from one whole number to the next; e.g., $5.80-$6/pack). A $1 tax increase in the ten states was projected to reduce the economic burden of smoking by an average of $531M (range: $93.6M-$976.5M) and increase gross tax revenue by an average of 162% (range: 114%- 247%).

Conclusions: Tobacco price sensitivity is nonlinear across the demand curve and in particular for pack-level left-digit price transitions. Tax increases in U.S. states with similar price and tax rates to the sample are projected to result in substantial decreases in smoking-related costs and substantial increases in tax revenues.


December 2012

James MacKillop
Lauren R. Few
James G. Murphy
Lauren M. Wier
John Acker
Cara Murphy
Monika Stojek
Maureen Carrigan
Frank J. Chaloupka