Topic: Miller College of Business

February 11, 2020

Raising taxes on e-cigarettes in an attempt to cut vaping may cause people to purchase more traditional cigarettes, says a new study funded by the National Institutes of Health and conducted by a team of researchers from six universities.

Using scanner data from 35,000 retailers nationally across years 2011-2017, the study found that for every 10% increase in e-cigarette prices, e-cigarette sales drop 26%. But, the same 10% increase in e-cigarette prices causes traditional cigarette sales to jump by 11%, said Erik Nesson, an economics professor in the Miller College of Business at Ball State, and a member of the research team.

“Although vaping-related illnesses are a public health concern, cigarettes continue to kill nearly 480,000 Americans each year, and several reviews support the conclusion that e-cigarettes contain fewer toxicants and are safer for non-pregnant adults,” Nesson said. “Thus, balancing e-cigarette and cigarette use will continue to be an important issue for policymakers to consider as they develop e-cigarette related tobacco control policies.”

As of January 2020, 20 states have an e-cigarette tax, which has significantly raised the price of e-cigarettes. Additionally, Congress is considering enacting a federal tax on e-cigarettes. In late October, 2019, the United States House Ways and Means Committee approved an e-cigarette tax with bipartisan support that set a national e-cigarette tax proportional to the Federal cigarette tax.

The prospect of a national tax concerns study co-author Michael Pesko, an economist from Georgia State University.

“We estimate that for every 1 e-cigarette pod no longer purchased as a result of an e-cigarette tax, 6.2 extra packs of cigarettes are purchased instead,” he said. “The public health impact of e-cigarette taxes in this case is likely negative.”

The study, “The Effects of E-Cigarette Taxes on E-Cigarette Prices and Consumption: Evidence from Retail Panel Data”, was posted today online by the National Bureau of Economic Research. The research team comprised six economists: Dr. Erik Nesson at Ball State University, Dr. Nathan Tefft at Bates College, Dr. Michael Pesko at Georgia State University, Dr. Catherine Maclean at Temple University, Dr. Charles Courtemanche at the University of Kentucky, and Dr. Chad Cotti at the University of Wisconsin Oshkosh.

The Centers for Disease Control and Prevention found that nearly 3% of adults in the United States used e-cigarettes in 2017. Use of e-cigarettes among adolescents has grown even more rapidly, with nearly 27.5% of high school students using e-cigarettes in 2019.

Visit Ball State's Miller College of Business website for more information.