An Assessment of the Impact of an Increase in the Tobacco Excise Tax on the U.S. Economy

Abstract

The analysis in this study examines the effects on the U.S. economy of a proposed $1 per pack equivalent increase in the tobacco products excise tax as a means to partially finance a program of health care reform. The analytical approach used in this study consisted of a general equilibrium model composed of 14 producing sectors, 14 consuming sectors, and six household categories classified by income and a government. Data suggest that as a result of an increase in the excise fax, there will be a decrease in output by all producing sectors of 0.21 percent, a fall in the consumption of goods and services by about 0.49 percent, a decline in total utility by 0.47 percent, and a net increase in government revenue of 1.74 percent. Moreover, as a consequence of this fax increase, tobacco consumption will decline by 12.15 percent. Clearly, an increase in the federal excise tax on tobacco products is a potent policy for curtailing smoking.