The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data
University of Kentucky
Joanna Catherine Maclean
Abstract: We explore the effect of e-cigarette taxes enacted through 2017 in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. We use the Nielsen Retail Scanner data for the years 2011 to 2017, comprising approximately 35,000 retailers nationally. We calculate a Herfindahl–Hirschman Index of 0.251 for retail-based purchases of ecigarettes, indicating high market concentration. We estimate a tax-to-price pass-through of 1.55 (p<0.01) and an e-cigarette own-price elasticity of -2.6 (p<0.01) for the average e-cigarette tax. We also estimate a positive cross-price elasticity of demand for e-cigarettes and traditional cigarettes of roughly 1.1 for the average tax, suggesting that e-cigarettes and traditional cigarettes are economic substitutes. Our results suggest that higher e-cigarette taxes would increase ecigarette prices and reduce e-cigarette sales, with an unintended effect of increasing traditional cigarette sales. We 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.
Published: January, 2020