Litigation and the political clout of the tobacco companies: cigarette taxes, prices, and the Master Settlement agreement (original) (raw)

Tobacco taxes and health care costs

Journal of Health Economics, 1986

Through their health care utilixation, smokers are generally perceived to be imposing a fiaaacial externality QZII non-smokers within health insurance systems To investigate the empirical basis for this view, we estimated publicly financed health care expenditure attributabIe to smoking for the Canadian province of Ontario and compared it to tobacco taxes paid by Ontario smokers Both initial estimates and the results of sensititity analyses perforrred on key assumptions and parameters of the estimation methodology rejected the hypothesized existence of a financiaI externality arising from smokers' health care utilization. *We wish to tha& Jane Fulton for her able research assistance. We are gratehi to Fred Bass, David Feeny, Jonathan Lomas and Stephen Walter for constructive comments during the preparation of this manuscript. This research was supported by a grant from the Heaith Education and Promotion Branch of the Ontario Ministry of Health and by National Wealth Research Scholar Award no. 6610-1231-48. 0167-6296/86/$3.50 0 1986, Elsevier Science Publishers B.V. (North-Holland) 'The analysis attempted by Thompson and Forbes (1982) and subsequent comment by Woodfield (1984) demonstrate that cost-benefit analysis of smoking is not a straightforward task. From a social viewpoint, all direct, indirect and intangible costs must be weighed against consumer willingness~to-pay (actual expenditure plus consumer surplus) for tobacco products. Partial analyses of costs ad benefits can be constructed from Lute and Schweitzer (1978) and Collishaw and Myers (1984). Lute and Schweitzer estimated the total cost of health care, lost production and fire losses attributable to or associated with smoking to be 27.5biiionfortheUnitedStatesin1976,comparedtoexpendituresof27.5 biiion for the United States in 1976, compared to expenditures of 27.5biiionfortheUnitedStatesin1976,comparedtoexpendituresof15.7 biiion by American smokers for all tobacco products. Collishaw and Myers estimated similar costs to be 5.2biionforCanadain1979,comparedtoconsumerexpendituresontobaccoof5.2 biion for Canada in 1979, compared to consumer expenditures on tobacco of 5.2biionforCanadain1979,comparedtoconsumerexpendituresontobaccoof3 billion. The interpretation of expenditure data as free and informed consumer choice is problematic, however, given the addictive nature of smoking and the very young ages at which decisions to smoke are frequently made.

Cigarette Taxes and the Master Settlement Agreement

Economic Inquiry, 2007

In 1998, 46 states and the four major tobacco companies entered into the Master Settlement Agreement (MSA), which stipulated that the tobacco companies pay the states 206billionoverthenextseveralyears.Meancigaretteexcisetaxesrosesubstantially,nearly90206 billion over the next several years. Mean cigarette excise taxes rose substantially, nearly 90%, between 1998 and 2002. The goal of our empirical analysis is to assess whether the changes in cigarette excise taxes can be attributed to litigation brought by the states and the resulting settlements. Using a panel data difference-in-difference approach, the evidence supports the view that litigation changes the political equilibrium: state cigarette excise taxes were approximately 206billionoverthenextseveralyears.Meancigaretteexcisetaxesrosesubstantially,nearly900.10 higher post-MSA.

Cigarette taxes, prices, and disparities in current smoking in the United States

SSM - Population Health, 2020

Increasing cigarette taxes has been the cornerstone of tobacco control policy. Recent work has argued that raising cigarette taxes alone may no longer be an effective strategy for lowering smoking rates. We largely confirm these findings but also find that increases in price continue to predict lower smoking participation in most model specifications. We argue that raising cigarette prices via taxation remains an effective public health policy. We discuss the advantages of homogeneous tax environments and minimum price laws for eliminating opportunities for consumers to offset tax increases by searching for lowest taxes.

The Effects of the Cigarette Excise Tax on State Smoking Rates, Healthcare Costs, and Beyond

During fiscal policy debates, increases in income and property taxes incite noticeable public protest, while parallel increases in "sin taxes" rarely receive an equal amount of attention. But the manipulation of these taxes may produce important costs and benefits for states. The excise tax on cigarettes is a particularly interesting case as its benefits depend on its indirect ability to decrease healthcare costs though reductions in smoking rates. This study tests whether a higher state tax rate decreases cigarette consumption, and thus, lowers tobacco-related healthcare costs. To examine this question, fixed effects multiple regression models are employed, using panel data from the Centers for Disease Control and Prevention (CDC) from 1996-2010 for all states and controlling for anti-tobacco program funding, population, and economic conditions. The final results show that significant predictive relationships exist between measures of cigarette consumption as related to price, yet these relationships only hold in predicting adult smoking rates (negative relationship), cessation rates (positive relationship), and pack sales per capita (negative relationship). Tax increases do not affect adult daily cigarette consumption rates in a significant way. Similarly, state funding for tobacco-control programs has little effect on consumption behavior. Hence, increases in cigarette taxes may be one of the main factors acting upon quitting behavior among adults, while not affecting the number of cigarettes a smoker consumes. The policy conclusions of these results – while hesitant – promote higher cigarette taxes as to curb smoking rates and indirectly ameliorate healthcare burdens.

Taxes, Cigarette Consumption, and Smoking Intensity: Reply

2012

This paper shows that smoking intensity, i.e. the amount of nicotine extracted per cigarette smoked, responds to changes in excise taxes and tobacco prices. We exploit data covering the period 1988 to 2006 across many US states. Moreover, we provide new evidence on the importance of cotinine measures in explaining long-run smoking behavior and we investigate the sensitivity of smoking cessation to changes in excise taxes and their interaction with smoking intensity. JEL Classification: D12, H25, I12

The Costs of Cigarettes: The Economic Case for Ex Post Incentive-Based Regulation

The Yale Law Journal, 1998

Lniersiit ot Michigan Ia.% School for funding portions of our research. Special thank% are o%,ed to Ste e ('role%. August flors'ath, and Andrew Ruffino, who each contributed significantl% to initial drafts of this Article h-malls'.. s, %.ant to express our deepest gratitude to Kathleen. Emil%. and Erin Ianson and to Ruth Ann. Hannah. Mull'. and Thomas Logue, all nonsmokers who have nesertheless generousl, borne icheir ossn share of the .oNts ot cigarettes.

Taxes, Cigarette Consumption and Smoking Intensity

2005

This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentration -a metabolite of nicotine -measured in a large population of smokers over time, we show that smokers compensate tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette is detrimental to health, our results question the usefulness of tax increases. Second, we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from severe estimation biases.