Estimating the effects of E-cigarette taxes: a generalized synthetic control approach

We examine the effects of e-cigarette tax policies on the sales quantities, prices, and sales revenues of e-cigarettes, cigarettes, and smoking cessation products (SCP). The data we use is weekly purchases from Nielsen Retail Scanner Data between 2011 and 2017. With a generalized synthetic control (GSC) identification strategy, we measure the average tax effects of multiple treated regions in various treated periods against the untreated control regions and the untreated periods. We reach an estimate of −3.567 for the own-price elasticity of e-cigarette demand and an estimate of 0.433 for the pass-through rate of e-cigarette taxes to price in all treated regions. Our results indicate that cigarettes and SCP are substitutes for e-cigarettes. We also discover that e-cigarette taxes show heterogeneous effects under different policy motivations, with the ad valorem taxes having a larger impact on e-cigarette demand.