Inside INdiana Business is reporting that raising taxes on e-cigarettes to cut vaping may have the unintended consequence of boosting sales of traditional cigarettes, according to a new study conducted by researchers at six universities, including Ball State.
The team analyzed scanner data from 35,000 retailers nationally during an eight-year period. The study found for every 10% increase in e-cigarette prices, e-cig sales dropped 26%.
“If the story ended there, then I think we would all say that cigarette taxes would be a good thing. But the story doesn’t end there,” explained Erik Nesson, an economics professor at Ball State.
The study found when there’s a 10% increase in e-cigarette prices, traditional cigarette sales jumped by about 10% as well.
“It is a balancing act. Unfortunately, often when you change the prices of one good, consumers respond by searching around for other goods that they may be able to place of the original,” Nesson said.
Twenty states currently have an e-cigarette tax, which significantly raised the price of e-cigarettes. The Indiana state legislature has discussed whether to boost taxes on sales of e-cigarettes to cut their usage, but the measure has not made it out of committee.
“Making policies are really hard, and really hard to do it right,” said Nesson. “I try to put the numbers out there and then let the policymakers make whatever choices they think are best.”
Additionally, Congress is considering enacting a federal tax on e-cigarettes. In late October 2019, the U.S. 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.