Increasingly, public health officials have advocated the use of higher cigarette excise taxes as a means to reduce smoking. Although there is considerable evidence that higher taxes reduce cigarette consumption, there is little direct evidence of how changing taxes alters mortality. This calculation is complicated by several factors. First, smokers who reduce the number of cigarettes purchased because of higher taxes may also adjust their smoking habits in a way that mitigates the health benefits of lower consumption. To maintain current tar or nicotine levels, some smokers might take longer drags on cigarettes or reduce the time between puffs, while others may compensate by moving to higher tar and higher nicotine cigarettes. Other smokers may simple purchase longer versions of their favorite brand. Second, not all smokers face the same risk from smoking and therefore, the benefit of smoking cessation is not uniform among smokers. As smoking rates have fallen in the past 20 years, we suspect that so the effects of taxes on the smoking participation decision may have changed as well. To provide a better link between the economic evidence on how taxes affect consumption and public health data on who benefits from smoking reduction, we plan to answer the following questions about the heterogeneity in demand response to changing cigarette excise taxes: l) Do smokers change their smoking habits when faced with higher cigarette taxes? Do smokers in higher tax states smoke cigarettes with higher tar and nicotine content than similar smokers in low-tax states? 2) Who are the smokers most likely to be affected by changing taxes, light or heavy smokers? 3) Who are the people most likely to quit smoking given a tax increase? How has this effect changed over time? To answer the first question, we will merge detailed smoking habits data from the Cancer Control Supplement (CCS) of the 1987 National Health Interview Survey (NHIS) with state excise tax rates. Preliminary evidence suggests that smokers do indeed adjust their smoking habits when faced with higher taxes. For example, smokers consume longer cigarettes and cigarettes with higher tar and nicotine content in higher tax states, reducing the health gains of a tax hike. Using emerging econometric techniques in quantile regression analysis, we will also test whether heavy or light smokers are more likely to change their cigarette consumption when faced with higher taxes. Quantile regressions allow parameter estimates from a standard linear regression to vary at different points in file conditional distribution of the dependent variable. For example, quantile regressions can estimate separate demand elasticities for smokers at the 10th, 50th, and 90th (light, median, and heavy smokers) percentile level of smoking. Lastly, using the NHIS data from 1976-92 we will investigate how the determinants of the decision to smoke or not smoke have evolved over time. Answers to all of these questions should provide public health researchers with a better understanding of the likely health benefits of changing excise taxes.
