The Effects of E-Cigarette Taxes on E-Cigarette Prices and Tobacco Product Sales: Evidence from Retail Panel Data

Abstract

This paper estimates effects of e-cigarette taxes enacted in eight states and two large counties on e-cigarette prices, e-cigarette sales, and sales of other tobacco products. We use NielsenIQ Retail Scanner data from 2011 to 2017, comprising approximately 35,000 retailers nationally, and develop a method to standardize e-cigarette taxes since adopting localities have taxed these products in heterogeneous ways. We estimate a tax-to-price pass-through rate of 1.44 and a Herfindahl–Hirschman Index of 0.246 for e-cigarette retail purchases, indicating a moderately to highly concentrated market structure theoretically linked to tax over-shifting. We then calculate an e-cigarette own-price elasticity of -1.30 and positive cross-price elasticities of demand between e-cigarettes and cigarettes, suggesting they are economic substitutes. Other analyses explore heterogeneity in tax and price responses across flavored and non-flavored e-cigarettes and cigarettes.