The impact of clean indoor-air laws and cigarette smuggling on demand for cigarettes: an empirical model

Abstract

This study examines the impact of clean indoor-air laws and smuggling activities on states’ per capita cigarette consumption and revenues by using a static demand model. The analysis was based on data for 50 states and the District of Columbia (DC) of the United Sates over the period 1970–1995. The estimated price elasticities of demand for cigarettes ranged from −0.48 to −0.62, indicating that a 10% increase in price would reduce consumption per capita by 4.8% to 6.2%. Anti-smoking laws had a significant negative impact on per capita consumption. In 1995, consumption was reduced by 4.7 packs per capita among states with anti-smoking laws, or 1.1 billion fewer packs of cigarettes consumed. Both short-distance smuggling between neighbouring states and long-distance smuggling from Kentucky, North Carolina and Virginia existed and were significant. Smuggling activities from military bases and Indian reservations, however, were not significant. On average, 6% of states’ tax revenues were lost due to smuggling activities in 1995. Results also showed that short-distance smuggling was less important than long-distance smuggling as a source of the revenue loss. Copyright © 2000 John Wiley & Sons, Ltd.