The effect of cigarette taxes on cigarette consumption

This paper reexamines the work of Meier and Licari in a previous issue of the Journal.

The impact of excise taxes on cigarette consumption and sales was measured via standard regression analysis.

The 1983 federal tax increase is shown to have an anomalous effect on the regression results. When those data are excluded, there is no significant difference between state and federal tax increases. Further investigation suggests that firms raised cigarette prices substantially in the years surrounding the 1983 federal tax increase, which accounts for the relatively large decrease in consumption during this period.

Federal excise taxes per se do not appear to be more effective than state excise taxes in terms of reducing cigarette consumption. The reaction of cigarette firms to government policies appears to be an important determinant of the success of antismoking initiatives.