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Low/Untaxed Cigarettes: Who Uses Them? Does It Decrease Cessation? How Much Does It Cost Taxpayers?

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Project Summary:

Cigarette excise taxes have increased sharply at both the state and federal level and the tax differential across states is larger than ever. Furthermore, new sources of low/untaxed cigarettes available from the Internet and Indian Reservations have become much more prevalent in recent years. Few previous econometric studies of cigarette prices and smoking behavior have been able to examine the impact of these less expensive sources of cigarettes on smoking prevalence or cessation because of the recent nature of this phenomenon and their reliance on large aggregate-level data rather than on individual smoking behavior and purchase patterns tracked longitudinally. A small but growing body of evidence suggests (but is not conclusive) that smokers do alter their purchase patterns when faced with price increases by switching to discount/generic cigarettes and by seeking out low/untaxed cigarette sources from other states, Indian Reservations, or the Internet. This limited pool of literature also suggests that smokers who make efforts to purchase less expensive cigarettes are less likely to quit in the future. The bottom line is that when cigarette prices go up, smokers adapt by changing their purchase patterns. These changing purchase patterns threaten to undermine the public health benefit of higher prices because they give price-sensitive smokers who may have quit otherwise an option to keep smoking. This weakens the effect higher prices have on cessation and also results in uncollected tax revenue for state governments. The purpose of this study is to use four ongoing prospective data sources at the local, state, and national levels to characterize smoker purchase patterns, persons who engage in high price avoidance behavior, what impact this has on a wide range of indicators of cessation, and what impact this has on lost or gained tax revenue by state. The New York State Adult Tobacco Survey (NYS ATS) characterizes cigarette purchase patterns very well and will be used in conjunction with a similar local survey in western New York as well as follow-up surveys of the Community Intervention Trial for Smoking Cessation (COMMIT) cohort and the International Tobacco Control Policy Evaluation Survey (ITCPES) at the state and national level to examine the frequency of different purchase patterns, changes in patterns, and the characteristics of those who engage in high price avoidance purchase patterns. Furthermore, each of these surveys is longitudinal and the impact of high price avoidance purchase patterns on indicators of cessation (such as actual quitting, cigarettes per day, and quit attempts), as well as measures of compensatory smoking never previously examined in relation to higher prices, will be examined. In addition to describing these behavioral measures, we will develop estimates of lost or gained cigarette tax collections by state so policy-makers can get a better handle on how large an issue cross-border sales are in their jurisdiction. States lose cigarette excise tax collections when smokers in that state travel to other states, Indian Reservations, or use the Internet to buy low/untaxed cigarettes. Conversely, those states that have low taxes are destinations for smokers in high tax states to purchase cheaper cigarettes and these states gain tax revenue. We will use the detailed purchase pattern data in the NYS ATS along with a geographical information system to develop state-specific estimates of uncollected tax revenue. Few econometric studies have accounted for the recent widespread prevalence of lower-priced cigarette options, and this study aims to begin to fill that knowledge gap. The end result of this project will be a better understanding of cigarette purchase patterns and the purchase of lower-priced products, what factors contribute to this behavior, what impact this has on cessation, and how this impacts the level of tax collections by state.

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