Sin taxes are excise taxes imposed on goods or behaviors – like booze and cigarettes – that lawmakers deem harmful. In addition to raising revenue, the idea is that bumping taxes high enough should trigger a slowdown in the behavior.
But what happens if taxpayers simply exchange the “sinful” behavior – not for a “better” response – but for another bad behavior? That’s precisely what a new study funded by the National Institutes of Health suggests: raising taxes on e-cigarettes in an attempt to curb vaping may cause people to purchase more traditional cigarettes.
Economists talk about the response to sin taxes in terms of elasticity. If the idea is to reduce bad behavior, it’s critical to figure out how high you can raise the tax to get people to reduce consumption. For example, when studying soda taxes, economist Roland Sturm concluded that “Small taxes will not prevent obesity.” Sturm determined that taxes would need to hit about 18 cents per dollar to affect behavior.
The same general idea was used to look at e-cigarettes. A team of researchers from six universities examined the effect 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. Using data from 35,000 national retailers from 2011 to 2017, researchers found that for every 10% increase in e-cigarette prices, e-cigarette sales dropped 26%. But the same 10% increase in e-cigarette prices caused traditional cigarette sales to jump by 11%.
Kelly Phillips Erb – Forbes – Feb 10, 2020.