RESEARCH REPORT

High-resolution behavioral economic analysis of cigarette demand to inform tax policy

  1. James MacKillop1,2,*,
  2. Lauren R. Few1,
  3. James G. Murphy2,3,
  4. Lauren M. Wier4,
  5. John Acker1,
  6. Cara Murphy1,
  7. Monika Stojek1,
  8. Maureen Carrigan5,
  9. Frank Chaloupka6

Article first published online: 30 JUL 2012

DOI: 10.1111/j.1360-0443.2012.03991.x

Issue

Addiction

Addiction

Volume 107, Issue 12, pages 2191–2200, December 2012

Additional Information

How to Cite

MacKillop, J., Few, L. R., Murphy, J. G., Wier, L. M., Acker, J., Murphy, C., Stojek, M., Carrigan, M. and Chaloupka, F. (2012), High-resolution behavioral economic analysis of cigarette demand to inform tax policy. Addiction, 107: 2191–2200. doi: 10.1111/j.1360-0443.2012.03991.x

Author Information

  1. 1

    Department of Psychology, University of Georgia, Athens, GA, USA

  2. 2

    Department of Behavioral and Social Sciences, Brown University, Providence, RI, USA

  3. 3

    Department of Psychology, University of Memphis, Memphis, TN, USA

  4. 4

    Program in Public Health, Brown University, Providence, RI, USA

  5. 5

    Department of Psychology, University of South Carolina Aiken, Aiken, SC, USA

  6. 6

    Department of Economics, University of Illinois-Chicago, Chicago, IL, USA

* Correspondence to: James MacKillop, Department of Psychology, University of Georgia, 100 Hooper St., Athens, GA 30602, USA. E-mail: jmackill@uga.edu

Publication History

  1. Issue published online: 20 NOV 2012
  2. Article first published online: 30 JUL 2012
  3. Manuscript Accepted: 14 JUN 2012
  4. Manuscript Revised: 5 MAR 2012
  5. Manuscript Received: 22 DEC 2011

Funded by

  • the National Center for Responsible Gaming
  • the Bill and Melinda Gates Foundation
  • the YMCA of the USA
  • the US Department of Agriculture
  • Canadian Institute of Health Research
  • the National Institutes on Cancer (Canada)
  • the American Legacy Foundation
  • the Substance Abuse Policy Research Program of the Robert Wood Johnson Foundation
  • the National Institutes of Health (NIH). Grant Number: K23 AA016936

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Keywords:

  • Behavioral economics;
  • cigarette demand;
  • nicotine dependence;
  • tax policy

Abstract

Aims

Novel methods in behavioral economics permit the systematic assessment of the relationship between cigarette consumption and price. Towards 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 10 US States.

Design

In-person descriptive survey assessment.

Setting

Academic departments at three universities.

Participants

Adult daily smokers (i.e. more than five 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 10 states was projected to reduce the economic burden of smoking by an average of $530.6 million (range: $93.6–976.5 million) and increase gross tax revenue by an average of 162% (range: 114–247%).

Conclusions

Tobacco price sensitivity is non-linear across the demand curve and in particular for pack-level left-digit price transitions. Tax increases in US 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.

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