The Influence of Geography and Measurement in Estimating Cigarette Price Responsiveness
We use data from the 2006–07 and 2010–11 waves of the Tobacco Use Supplement of the Current Population Survey to calculate cigarette price elasticities that compensate for within-state cigarette prices. We use four state-level cigarette price measures and two sub-state-level cigarette price measures. One of the local price measures allows for tax avoidance-related travel opportunities, while the other does not. For the two local price measures, we exploit month specific changes in these two prices in 446 sub-state areas of the United States. We document substantial variation in within-state prices, and we calculate that this variation approximately triples estimates of cigarette price responsiveness compared to using state-level prices. When using local prices and allowing price variation from tax avoidance-related travel opportunities, we calculate that a 10% rise in cigarette prices reduces cigarette consumption by a mean of 3.1%, which ranges from a 2.2% reduction at a price level $3 to a 6.7% reduction at a price level of $9.