Cigarette Taxes & Consumption

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Do Taxes Really Affect the Consumption of Cigarettes? Sanjay Kumra The issue of smoking has recently been under close scrutiny by the government. Tobacco companies have been blamed for marketing their products to young teenagers who are not even legally old enough to smoke. In recent years, cigarette advertising has been severely limited by the government. Large billboards that once sported such figures as Joe Camel and the Marlboro Man now have to display messages about smoking cessation or why smoking “isn’t cool.” In fact, a person will not see Joe Camel at all due to the prohibition of the use of the R.J. Reynolds cartoon. In addition, tobacco company sponsorship of sporting events is beginning to be limited. Since the government is launching a full-scale attack on the tobacco industry, taxes have become the medium by which prices are controlled. There have been several studies concerning the consumption of cigarettes and the explanatory variables associated with that consumption. All of the studies have shown that taxes can be significant in reducing smoking. Yoram Barzel (1976) says that the effect of a per unit tax raises the price by more than the amount of the tax, while an ad valorem tax actually decreases the price by less than the amount of the tax. John A. Bishop and Jang H. Yoo (1985) determined that the consumption of cigarettes is significantly affected by the taxes levied on the cigarettes. The tax, they found, had more of an effect on consumption than did the health scare created by the government in the 1960’s in Surgeon General’s reports. Additionally, W. Kip Viscusi (1990) found that excise taxes discourage smoking by serving as a monetary cost for the risks associated with smoking. In this study, the effects of state cigarette taxes on the consumption of cigarettes among age groups 18-24, 25-44, 45-64, and 65 and over

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