IDEAS home Printed from https://ideas.repec.org/a/gam/jijerp/v21y2024i11p1465-d1512829.html
   My bibliography  Save this article

The Tax Incidence and Tax Pass-Through of Smokeless Tobacco in the US

Author

Listed:
  • Yanyun He

    (Center for Tobacco Research, The Ohio State University Wexner Medical Center, 3650 Olentangy River Rd, Columbus, OH 43214, USA)

  • Qian Yang

    (Center for Tobacco Research, The Ohio State University Wexner Medical Center, 3650 Olentangy River Rd, Columbus, OH 43214, USA)

  • Ce Shang

    (Center for Tobacco Research, The Ohio State University Wexner Medical Center, 3650 Olentangy River Rd, Columbus, OH 43214, USA
    Department of Internal Medicine, Medical Oncology Division, The Ohio State University, Columbus, OH 43201, USA)

Abstract

Background: States adopt different tax bases for smokeless tobacco (SLT), making tax incidence on SLT not directly comparable across states. In addition, how taxes are passed through to SLT prices among states that impose specific taxes, and whether the pass-through rates for SLT are affected by the uptake and evolution of e-cigarettes, is unknown. Objective: This study will calculate the tax incidence on SLT and investigate how SLT taxes are passed to prices at the 25th, 50th, and 75th percentile levels, as well as whether these pass-through rates vary by e-cigarette uptake and evolution. Methods: We regressed SLT prices on specific taxes using ordinary least square regressions while controlling for state-, year-, and quarter-fixed effects. We then tested the difference in tax pass-through rates by different periods. Findings: The average tax incidence on chewing tobacco, moist snuff, dry snuff, and snus was 22%, 22%, 23%, and 20%, respectively. For moist snuff, taxes were fully passed to prices at the 25th and 50th percentiles (rate = 1.01, p < 0.001) and overly passed to prices at the 75th percentile (rate = 1.25, p < 0.001). The e-cigarette uptake and evolution significantly raised taxes by 13 cents and 14 cents per ounce, respectively, for moist snuff at the 75th percentile prices ( p < 0.05). Conclusions: If harm is considered a criterion for taxing tobacco products, the tax incidence on SLT could be further increased. Considering that lower-priced SLT have lower tax pass-through rates, price promotion restrictions and minimum pricing laws may be needed to increase the cost of lower-priced products. Additionally, we observed that tobacco companies tended to increase tax pass-through for premium SLT products as e-cigarettes gained popularity, which may indicate a strategic response to shifting consumer preferences.

Suggested Citation

  • Yanyun He & Qian Yang & Ce Shang, 2024. "The Tax Incidence and Tax Pass-Through of Smokeless Tobacco in the US," IJERPH, MDPI, vol. 21(11), pages 1-14, November.
  • Handle: RePEc:gam:jijerp:v:21:y:2024:i:11:p:1465-:d:1512829
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/1660-4601/21/11/1465/pdf
    Download Restriction: no

    File URL: https://www.mdpi.com/1660-4601/21/11/1465/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. U. Michael Bergman & Niels Lynggård Hansen, 2019. "Are Excise Taxes on Beverages Fully Passed Through to Prices? The Danish Evidence," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 75(4), pages 323-356.
    2. Delipalla, Sophia & O'Donnell, Owen, 2001. "Estimating tax incidence, market power and market conduct: The European cigarette industry," International Journal of Industrial Organization, Elsevier, vol. 19(6), pages 885-908, May.
    3. John Tauras & Lisa Powell & Frank Chaloupka & Hana Ross, 2007. "The demand for smokeless tobacco among male high school students in the United States: the impact of taxes, prices and policies," Applied Economics, Taylor & Francis Journals, vol. 39(1), pages 31-41.
    4. Hanson, Andrew & Sullivan, Ryan, 2009. "The Incidence of Tobacco Taxation: Evidence From Geographic Micro-Level Data," National Tax Journal, National Tax Association;National Tax Journal, vol. 62(4), pages 677-698, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philip DeCicca & Donald Kenkel & Feng Liu, 2015. "Reservation Prices: An Economic Analysis of Cigarette Purchases on Indian Reservations," National Tax Journal, National Tax Association;National Tax Journal, vol. 68(1), pages 93-118, March.
    2. Panayiota Lyssiotou & Elena Savva, 2021. "Who pays taxes on basic foodstuffs? Evidence from broadening the VAT base," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(1), pages 212-247, February.
    3. DeCicca, Philip & Kenkel, Donald & Liu, Feng, 2013. "Excise tax avoidance: The case of state cigarette taxes," Journal of Health Economics, Elsevier, vol. 32(6), pages 1130-1141.
    4. Philip DeCicca & Donald Kenkel & Feng Liu, 2013. "Who Pays Cigarette Taxes? The Impact of Consumer Price Search," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 516-529, May.
    5. Raymundo M. Campos-Vázquez & Eduardo M. Medina-Cortina, 2019. "Pass-through and competition: the impact of soft drink taxes as seen through Mexican supermarkets," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-23, December.
    6. Bonnet, Céline & Réquillart, Vincent, 2013. "Tax incidence with strategic firms in the soft drink market," Journal of Public Economics, Elsevier, vol. 106(C), pages 77-88.
    7. Kenchington, David G. & Shohfi, Thomas D. & Smith, Jared D. & White, Roger M., 2022. "Do sin tax hikes spur cheating in interpersonal exchange?," Accounting, Organizations and Society, Elsevier, vol. 96(C).
    8. Finkelstein, Eric A. & Zhen, Chen & Bilger, Marcel & Nonnemaker, James & Farooqui, Assad M. & Todd, Jessica E., 2013. "Implications of a sugar-sweetened beverage (SSB) tax when substitutions to non-beverage items are considered," Journal of Health Economics, Elsevier, vol. 32(1), pages 219-239.
    9. Caitlan Russell & Corne van Walbeek, 2016. "How does a Change in the Excise Tax on Beer Impact Beer Retail Prices in South Africa?," South African Journal of Economics, Economic Society of South Africa, vol. 84(4), pages 555-573, December.
    10. Ce Shang & Anh Ngo & Frank J. Chaloupka, 2020. "The pass-through of alcohol excise taxes to prices in OECD countries," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 21(6), pages 855-867, August.
    11. Raúl Bajo-Buenestado & Miguel Ángel Borrella-Mas, 2022. "The Heterogeneous Tax Pass-Through Under Different Vertical Relationships," The Economic Journal, Royal Economic Society, vol. 132(645), pages 1684-1708.
    12. Donald H. Dutkowsky & Ryan S. Sullivan, 2014. "Excise Taxes, Consumer Demand, Over-Shifting, and Tax Revenue," Public Budgeting & Finance, Wiley Blackwell, vol. 34(3), pages 111-125, September.
    13. Carbonnier Cl´ement, 2014. "The incidence of non-linear consumption taxes," Научный результат. Серия «Экономические исследования», CyberLeninka;Федеральное государственное автономное образовательное учреждение высшего образования «Белгородский государственный национальный исследовательский университет», issue 1, pages 5-18.
    14. Lesley Chiou & Erich Muehlegger, 2014. "Consumer Response to Cigarette Excise Tax Changes," National Tax Journal, National Tax Association;National Tax Journal, vol. 67(3), pages 621-650, September.
    15. David Madden, 2002. "Do Tobacco Taxes Influence Starting and Quitting Smoking? A Discrete Choice Approach Using Evidence from a Sample of Irish Women," Working Papers 200205, School of Economics, University College Dublin.
    16. Kostova, Deliana & Dave, Dhaval, 2015. "Smokeless tobacco use in India: Role of prices and advertising," Social Science & Medicine, Elsevier, vol. 138(C), pages 82-90.
    17. Pierre Dubois & Rachel Griffith & Martin O'Connell, 2020. "How Well Targeted Are Soda Taxes?," American Economic Review, American Economic Association, vol. 110(11), pages 3661-3704, November.
    18. Hansen, Benjamin & Sabia, Joseph J. & Rees, Daniel I., 2011. "Cigarette Taxes and the Social Market," IZA Discussion Papers 5580, Institute of Labor Economics (IZA).
    19. Sanz Labrador, Ismael & Sanz-Sanz, José Félix, 2013. "Política fiscal y crecimiento económico: consideraciones microeconómicas y relaciones macroeconómicas," Macroeconomía del Desarrollo 5367, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    20. Takanori Adachi & Michal Fabinger, 2017. "Multi-Dimensional Pass-Through, Incidence, and the Welfare Burden of Taxation in Oligopoly," CIRJE F-Series CIRJE-F-1040, CIRJE, Faculty of Economics, University of Tokyo.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jijerp:v:21:y:2024:i:11:p:1465-:d:1512829. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.