The Effect of Cigarette Taxation on Prices: An Empirical Analysis Using Local-Level Data

Abstract

This paper combines new, author-collected tax data with data both from the American Chamber of Commerce Researchers Association (ACCRA) cost of living index (COLI) and from the Tax Burden on Tobacco (TBT) to measure the relative effects of city, county and state excise cigarette taxation on cigarette prices. The results suggest that a $1 increase in the state excise cigarette tax increases cigarette prices between $1.10 and $1.14, but that a $1 increase in a city or county-level excise tax increases prices by $1.07. These findings are similar between premium and generic cigarette brands. Additionally, the findings indicate that urban areas located near states with lower cigarette taxes tend to have lower cigarette prices relative to urban areas located near states with the same or higher tax rates.