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Monitoring and Assessing the Impact of Tax and Price Policies on US Tobacco Use

a PSC Research Project

Investigator:   Lloyd Johnston

The overarching goal of the proposed project lead by PI, Frank Chaloupka, at the University of Illinois at Chicago (UIC) is to better understand the impact of tobacco prices and taxes on tobacco products purchase related behavior, consumption of tobacco products, tobacco industry market strategies, and tobacco use related outcomes among various subpopulations defined by age, gender, race/ethnicity, and socio-economic status.
While tobacco product excise taxes are widely considered the single most effective policy for reducing tobacco use, higher taxes and prices lead to other changes in behavior that may or may not have been fully anticipated and which may result in smaller than expected effects on tobacco use, its consequences, and other outcomes. For example, some users may 'switch down' to cheaper brands while others may substitute to other tobacco products given changes in the relative prices of various products; others may engage in efforts to avoid taxes (e.g. by buying on-line, from reservations, or in nearby lower tax/price jurisdictions), while some may be more likely to take advantage of industry promotions that reduce tobacco product prices. Some may reduce spending on other goods/services in order to maintain expenditures on tobacco products. In addition, the many recent large and/or frequent state and local tax increases and the large April 2009 federal tax increase have raised questions about whether or not the magnitude of the effect of tobacco product tax and price changes is changing, how the long run impact differs from the short run impact, and about the differential effects of tax and price increases on different subpopulations. Further questions about the impact of tax and price changes are raised by transformations on the supply side of the tobacco product markets, including the increased importance of targeted price-reducing promotions in tobacco company marketing strategies, the greater availability of discount cigarettes including from companies (non-participating manufacturers (NPMs) that have not signed on to the Master Settlement Agreement (MSA), the emergence of a variety of new tobacco products and the implementation of tobacco product regulation. Additionally, little is known about the impact of recent and likely future federal, state and local policies, including efforts to curb direct (e.g. Internet, mail and phone) and reservation purchases/sales, improve tax administration and enforcement, regulate price reducing promotions through minimum pricing and other policies, and address NPM sales.
The proposed project is aim to address the above-mentioned questions. The core components of the proposed project involve examining how some key state and tribal level policies affect pricing and marketing of tobacco products; investigating the response of consumers and tobacco industry to higher tobacco prices/taxes; and assessing the impact and its magnitude of higher tobacco prices/taxes on a number of tobacco related outcomes among youth, minorities, low-income families and various high risk groups. In particular, the research team of this project will identify, document, code and track key state and other policies affecting retail tobacco product prices for the years 2002-2012; assess the impact of price-related policies on retail prices and price-reducing promotions for tobacco products; assess the impact of tobacco product prices, price-reducing promotions, and related policies on tobacco product purchasing behaviors; estimate the extent of and determinants of tax avoidance and tax evasion; examine the impact of tobacco product prices, price-reducing promotions, and related policies on tobacco use behaviors, and evaluate the impact of prices, price-reducing promotions, and related policies on other household spending.
A variety of data sources will be utilized in this project. Those data sources will be obtained through a combination of original data collection and acquisition of existin

Funding Period: 08/01/2013 to 07/31/2014

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