Smoke Gets in Your Eyes: Cigarette Tax Salience and Regressivity

Author
Abstract

Recent evidence suggests consumers pay less attention to commodity taxes that are levied at the register than to taxes that are included in a good’s posted price. If this attention gap is larger for high-income consumers than for low-income consumers, policymakers can manipulate a tax’s regressivity by altering the fraction of the tax imposed at the register. We investigate income differences in attentiveness to cigarette taxes, exploiting state and time variation in cigarette excise and sales tax
rates. Whereas all consumers respond to taxes that appear in cigarettes’ posted price, only low-income consumers respond to taxes levied at the register.

Year of Publication
2011
Number
561a
Date Published
08/2011
Publication Language
eng
Citation Key
8411
URL
Working Papers