Cigarette Taxes and the Household Budget

Michael E. Darden

Reginald Hebert

Michael F. Pesko

Samuel Sturm

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Abstract: We study the effects of cigarette excise taxes on smokers’ household budgets. In a randomized survey experiment, smokers respond to tax increases by adjusting cigarette shopping behaviors, substituting towards other tobacco products, and reducing both discretionary and human capital-related expenditures. Using Consumer Expenditure Survey data and a quasi-experimental design, we find cigarette taxes reduce smoking prevalence but increase cigarette expenditures among continuing smokers. Additionally, a $1 increase in cigarette taxes causes a 2.12% decline in human capital-related expenditures among below median income smokers. Our work uncovers important unintended consequences of cigarette taxes, particularly for low-income individuals.

Released: April, 2025