Taxing Tobacco: The Impact of Tobacco Taxes on Cigarette Smoking and Other Tobacco Use

Abstract

Abstract For centuries, governments at all levels have taxed tobacco and tobacco products. Historically, these taxes have been used because of their relatively low administrative costs and their substantial revenue-generating potential. This potential was based, in large part, on the perception that tobacco use was insensitive to price. However, over the past several decades, numerous studies using a wide variety of data and statistical methods have found that tobacco use is no exception to the basic principles of economics. These studies clearly show that increases in the prices of tobacco products, including those that result from increased taxation, lead to significant reductions in cigarette smoking and other tobacco use. With this evidence, more recent increases in tobacco taxes have been motivated, at least in part, by their potential to reduce tobacco use and its health consequences. Critics of these taxes, however, argue that increases in taxes are inappropriate and will have harmful economic effects, including increased smuggling and significant job losses.