Franks Et Al. Respond

Farrelly and Engelen appear to have repeated our analyses, but have included 2 more recent years of data and used Nielsen retail price data as well as the tax burden data that we used. There are some noteworthy inconsistencies. First, despite using more years of data, their sample size was over 1 million persons smaller than ours. Second, they noted that a meta-analysis found an elasticity of −0.4, which is what we found in the earlier time period. However, the elasticity they reported throughout was much lower (range: −0.1 to −0.13). This lower elasticity is actually less than the elasticity we reported (−0.14) for poorer persons in the more recent time period. Third, despite the smaller sample size and lower elasticity, they reported the effect as statistically significant, whereas we found a larger effect not statistically significant. Fourth, the rationale for using Neilson data is that actual prices may be lower than those in the tax burden data. Thus, use of the tax burden data may underestimate elasticity. However, paradoxically, their results using Nielsen data compared with the tax burden data suggest less elasticity with the Nielsen data. The reasons for these inconsistencies are unclear, given the limited presentation of their methods. One possibility is that they ignored the clustered nature of the data (thereby overstating the statistical significance of their findings); another is that the Nielsen data are problematic.1 Beyond these methodological issues, there are some important policy implications of our findings. While higher prices may still contribute to smoking cessation (and reduced initiation), the gap between the poor and less poor in smoking is increasing. The burden of higher cigarette prices thus falls increasingly on poorer persons. Funding broad social policies (like expansion of health care coverage) through taxation aimed at a narrow, poor segment of society may be politically expedient. However, in our view, such policy is short sighted and contributes to the fragmentation of social cohesiveness. Further, if higher prices do lead to reduced smoking, then tax revenues will decline, undermining the fiscal basis of the expanded health coverage

Econometrics · Economics · Elasticity (physics) · Price elasticity of demand · Sample size determination · Statistics · Demography · Fiscal Policy and Economic Growth · Global Health Care Issues · Health disparities and outcomes · Mathematics · Medicine

• A Behavioral Economics Perspective on Tobacco Taxation

  Rajeev Cherukupalli•American Journal of Public Health•2010

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