206234 Using littered pack data from NYC to study the effect on tax avoidance of the June 2008 increase in the New York State cigarette tax

Tuesday, November 10, 2009: 2:48 PM

Howard Chernick, PHD, Economics , Department of Economics, Hunter College, City Univ. of NY, New York, NY
David Merriman, PHD, Economics , Department of Public Administration, University of Illinois at Chicago, Chicago, IL
On June 3, 2008, New York State increased its cigarette tax by $1.25 per pack, raising the combined NYS/NYC tax to $4.25 per pack, the highest city/state tax rate in the United States. To study the effect on tax avoidance in NYC, we used an innovative method based on an earlier Chicago study. We collected littered packs of cigarettes from a population weighted random sample of 30 census tracts. Data were collected in three rounds: the first before the tax increase, the second two weeks after the increase, and the third in September. A total of 223 packs were collected in the first round, and 262 packs in each of the subsequent rounds. The percentage of packs with no tax stamp -- reflecting purchases from tribal reservations, the internet or other non-taxed sources -- showed a statistically significant increase from 15% to 24% between the first and second two rounds. The percentage of packs with a NYC/NYS stamp declined from 55% to 48%; this difference was not statistically significantly. There was no evidence of an increase in tax stamps from other states. Based on stamp sales and the littered pack data, the tax increase caused an estimated decline in cigarette consumption in NYC from 22 million packs per month to 19.5 million, about 10.5% from 2007 to 2008. Monthly tax avoidance increased 9.2%, from 7.8 to 8.5 million packs. These estimates suggest that the increases in cigarette taxes led to a reduction in consumption, even though tax avoidance also increased.

Learning Objectives:
Evaluate the extent to which a tax increase on cigarettes in the highest tax jurisdiction in the U.S. leads to an increase in tax avoidance.

Keywords: Tobacco Taxation, Tobacco Taxation

Presenting author's disclosure statement:

Qualified on the content I am responsible for because: Research on cigarette taxation. “Cigarette Excise Tax Revenues.” National Tax Association Proceedings, 100th Annual Conference, Columbus, Ohio, 2008.
Any relevant financial relationships? No

I agree to comply with the American Public Health Association Conflict of Interest and Commercial Support Guidelines, and to disclose to the participants any off-label or experimental uses of a commercial product or service discussed in my presentation.