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Monitoring and Assessing the Impact of Tax and Price Policies on U.S. Tobacco Use

Project Title: Monitoring and Assessing the Impact of Tax and Price Policies on U.S. Tobacco Use

Organization: University of Illinois at Chicago

Grant Number: 1U01CA154248

Principal Investigator:  Frank Chaloupka

Note: The descriptions in this section were provided by the principal investigator and are not maintained or updated by NCI.

Co-Investigator:  Jamie Chriqui, University of Illinois at Chicago

Project Website: http://www.tobacconomics.org exit disclaimer

Study summary
Dr. Chaloupka and his team conducted research to increase our understanding of the impact of tobacco tax and price policies on tobacco use and related behaviors. His project used a combination of original data collection; acquisition of existing archival, survey, and commercial databases; and merged data analyses that build on his research team’s work on the Bridging the Gap/ImpacTeen (BTG) project, International Tobacco Control Policy Evaluation Study (ITC), and related efforts. Key products, data, and findings from the project are available at www.tobacconomics.org.
               
Research Aims and Methods                                                                     
1.    Compiled a historical data set of codified law (statutes, regulations, and case law) and policies (including attorney general and tax agency opinions) affecting the taxation and pricing of cigarette and other tobacco products sold at retail or distributed at wholesale, including excise taxes,  , minimum pricing policies, and state policies governing tribal tobacco sales. .
2.    Assessed the impact of price-related policies on tobacco product retail prices and price-reducing promotions.
3.    Assessed the impact of tobacco product prices, price-reducing promotions, and related policies on tobacco product purchasing behaviors, such as influence on brand choice, tobacco product substitution, purchase type, and location and use of price-reducing promo­tions.
4.    Estimated the extent and determinants of tax avoidance and tax evasion.
5.    Examined the impact of tobacco product prices, price-reducing promotions, and related policies on tobacco use behaviors, such as whether tobacco product demand is becoming more or less inelastic as prices rise and the duration of the effects of tax and price increases.
6.    Disseminate and communicate findings to a diverse audience of policymakers, tobacco control advocates, public health practitioners and researchers, and the general public.

Target Population:  Tobacco tax policies

Key findings

  • Legal research documented the considerable variations in state tobacco tax/price related policies, including taxation of all types of tobacco products, minimum pricing policies, and policies influencing tribal tobacco sales. 
  • Differences in taxes and prices on different types of tobacco products were found to result in substitution among tobacco products; for example, relatively low taxes on roll-your-own tobacco compared to cigarettes in some states resulted in RYO being more affordable and RYO sales being higher. 
  • Estimates based on both state-tax paid sales data and individual tobacco use data from the Tobacco Use Supplement to the Current Population Survey showed that price elasticity of cigarette demand was greater at higher prices and vice versa. 
  • Strong minimum pricing policies were found to result in higher average cigarette prices, by increasing prices at the lower end of the market, and were associated with reduced cigarette smoking.

Key implications

  • Harmonization of tobacco taxes across tobacco products, particularly combustible tobacco products, would reduce substitution among these products and maximize the health and revenue impact of tobacco taxes.
  • Tobacco tax increases will continue to reduce tobacco use even in jurisdictions with high tax and price levels.
  • Minimum pricing policies that do not allow exceptions for price reducing promotions, price matching, and other ways to reduce price are effective in raising cigarette prices and reducing tobacco use.
  • Cigarette tax increases are effective in reducing tobacco use and increasing tax revenues, even if they also result in increased tax avoidance and evasion.

Original Abstract
The overarching aim of this project is to improve our understanding of the impact of tobacco tax and price policies on tobacco use and related behaviors. This will be done through a combination of: original data collection; acquisition of existing archival, survey, and commercial databases; and merged data analyses that build on the multidisciplinary research team's extensive past and ongoing work on these issues as part of the Bridging the Gap/lmpacTeen project, the International Tobacco Control Policy Evaluation Study, and related efforts. There are seven specific aims: 1) identify, document, code and track key state and other policies affecting retail tobacco product prices (e.g. excise taxes, minimum pricing policies, direct sales policies, policies addressing reservation sales (including compacts), policies limiting price promotions, and policies strengthening tax and MSA administration and enforcement) for the years 2002 through 2012; 2) assess the impact of price related policies on retail prices of tobacco products, using data collected observationally, from store-based scanner systems, and from tobacco user self-reports; 3) assess the impact of tobacco product prices, price reducing promotions, and related policies on tobacco product purchasing behaviors, including choice of product and brand, t3TDe and location of purchase, and use of price reducing promotions; 4) estimate the extent of and determinants of tax avoidance (including cross border shopping and reservation, online, mail, phone and duty free purchases) and tax evasion (including 'buttlegging' and counterfeit), including the impact of key policies on these activities; 5) examine the impact of tobacco product prices, price-reducing promotions, and related policies on tobacco use behaviors, including: prevalence, frequency and intensity of use; youth uptake; cessation intentions, attempts, and success; and substitution among products; 6) evaluate the impact of taxes, prices, price reducing promotions, and related policies on household spending on tobacco products and other goods and services, particularly among poor households; and 7) disseminate and communicate policy relevant research findings to many audiences, including policy makers, advocates, public health practitioners, researchers, and the general public. All analyses will pay particular attention to differential effects on key population subgroups.