The Economics of Smoking

Discussion created by Thesegoto11 on Nov 25, 2020

A year after the 2008 Financial Crisis, the Federal govt raised the cigarette tax by 61 cents a pack.  Many states followed suit to shore up their budgets.  Texas, for example, immediately slapped on a $1 per pack increase.  So, if you bought cigarettes in Texas, within the span of a few months, the price jumped from $3.75 to $5.35 a pack, a 43% increase.


Two years later an article in the local newspaper described the effects the tax increase had on the state.  It brought in an amazing $1B a year in additional tax revenue even though it was estimated there were now 3% fewer smokers.  (Apparently, smokers have their price point too.  Who knew?)


The article went on to say the CDC once developed a mathematical model that showed for every 10% increase in the price of cigarettes there is typically a 1% drop in the number of smokers.   So, when states face budget shortfalls and turn to "sin" taxes as they frequently do, they could use that metric to arrive at an appropriately-sized increase.


For myself, this was one of the main reasons I quit in 2009.  What about you?  Does price matter?


I've included a link below to a poll  that asks that very question.   (It's my first attempt at a poll, so understand if things don't go well.)  For those of you who have quit for over a year, was price-per-pack a factor?


Does Price Point Matter?