Estimating the Impact of Large Cigarette Tax Hikes
The Case of Maternal Smoking and Infant Birth Weight
Diana S. Lien William N. Evans
A B S T R A C T
Using a statistical matching procedure to choose control groups, we find that four states that adopted large cigarette tax hikes had corresponding
decreases in smoking participation of pregnant women. Using the tax hike as an instrument for smoking in birth-weight equations and pooling data across
experiments, we find that smoking during pregnancy doubles the chance an infant is born with a low birth weight. Our estimates are similar to single-
equation estimates where maternal smoking is treated as exogenous.
I. Introduction
Since the release of the 1964 Surgeon General’s report, private and public health officials have waged an aggressive campaign against tobacco use. This
campaign has included policies as diverse as restrictions on advertising, antismoking public service announcements, education programs, youth-access restrictions, and
smoking bans in public places. In aggregate, these policies appear to have achieved some measure of success. Over the past 20 years, per capita cigarette consumption
and the fraction of adult smokers have declined considerably.
Diana S. Lien is an economist at the CNA Corporation. William N. Evans is a professor of economics, University of Maryland, a Faculty Associate of the Maryland Population Research Center, and a Research
Associate of the National Bureau of Economic Research. Preparation of this article was assisted by a grant from the Robert Wood Johnson Foundation Substance Abuse Policy Research Program. The authors
are grateful to seminar participants at the University of Maryland, Brown University, Columbia University, Trinity College, CNA Corporation, Congressional Budget Office, U.S. Treasury Department
and U.S. Census Bureau for helpful input. The data used in this article can be obtained beginning October 2005 through September 2008 from William N. Evans, Department of Economics, University of Maryland,
College Park, MD 20742, evansecon.umd.edu. [Submitted May 2002; accepted August 2004]
ISSN 022-166X E-ISSN 1548-8004 © 2005 by the Board of Regents of the University of Wisconsin System
T H E J O U R NA L O F H U M A N R E S O U R C E S
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One policy instrument that has received a considerable amount of attention in the past few years is higher excise taxes on cigarettes. As Reducing Tobacco Use:
A Report of the Surgeon General states p. 19-20, “raising tobacco excise taxes is
widely regarded as one of the most effective tobacco prevention and control strate- gies.” For a variety of reasons, states are finding it increasingly easier to raise taxes on
smokers. Between 1990 and 2003, there have been 113 increases in state excise taxes on cigarettes. Over that time, the average state tax nominal on cigarettes has
increased from 23 to 73 centspack. A number of these tax increases have been incred- ibly large including 45 hikes of a quarter or more per pack and 15 hikes of 50 cents
per pack or more.
The interest in trying to reduce smoking through higher taxes is spurred on in part by a large body of economic research showing that cigarette consumption falls after
price or tax hikes. Chaloupka and Warner’s 2000 extensive review of the literature suggests the consensus price elasticity of demand is around
−0.40. A typical study correlates changes in cigarette consumption over time within a state either at the indi-
vidual or aggregate level to changes in price or tax rates. Given the time-span in most of these studies, demand elasticities are usually identified by small year-to-year
changes in nominal tax rates.
There have been some efforts to examine differences across age, race, sex, or income groups in the estimated elasticity of demand, but there have been few efforts
to examine the impact of tax hikes on an important group of smokers: pregnant women. Preterm labor and intrautarine growth retardation, which result in low birth
weight, are related to smoking Kramer 1987. The Surgeon General U.S. D.H.H.S. 2000 concludes that smoking doubles the risk of a low-weight birth and according to
Chomitz, Cheung, and Lieberman 1995, if all women stopped smoking when they became pregnant, at least 20 percent of all low birth-weight infants could be avoided.
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Evans and Ringel 1999 were the first to examine the relationship between ciga- rette excise taxes and smoking among pregnant women. Using Natality Detail data
from 1989–92, they use a within-group estimator and calculate a smoking participa- tion elasticity of
−0.5. Given the time frame considered, most of the year-to-year changes in state tax rates they examine were very small. Gruber and Köszegi 2001
using a rational addiction framework, calculate an effective price elasticity of smok- ing participation among pregnant women of
−0.35. Gruber and Zinman 2001 find a price elasticity of smoking participation for older pregnant teens of
−0.38, but much less of an impact of price on the smoking participation of younger pregnant teens.
Finally, Coleman, Grossman, and Joyce 2002 use a longitudinal data set to track the smoking of women before, during, and after their pregnancy. They find that higher
cigarette excise taxes increase smoking quit rates during pregnancy and reduce smok- ing relapse rates after birth. Their estimates suggest the price elasticity of prenatal
quitting and postpartum relapse are both about one in absolute value. The Journal of Human Resources
374
1. Health service researchers commonly use infant birth weight as a marker for a number of infant health factors, including infant mortality. Recent research by Almond, Chay, and Lee 2004, however, question this
result. Looking at the birth outcomes of twins, the authors find that holding gestation constant, birth weight is only weakly correlated with infant mortality. Unfortunately in our case, sample sizes are not sufficient to
measure the impact of higher cigarette taxes on infant mortality.
In this paper, we also examine the impact of higher taxes on maternal smoking and birth outcomes, but we look at this issue using a different methodology. We
examine the smoking rates among pregnant women in four states before and after large, one-time tax hikes. There are four reasons we are interested in using these
experiments in this context. First, since previous estimates of demand elasticities are based only on marginal price or tax changes, these estimates may not accu-
rately predict the likely consequences of recent large tax hikes. Second, by focus- ing on one state at a time, we can use a more scientific method to choose a control
group. Third, by focusing on these large tax hikes and pregnant women, we can potentially identify the health benefits of tax hikes. Fourth, as we document in the
conclusion, large tax hikes are becoming more frequent.
Data for this project is taken from the 1990–97 Natality Detail files that contain a census of births in the United States and include measures of self-reported smok-
ing for births in most states. We find that increasing cigarette excise taxes reduces smoking participation among pregnant women but the size of the response differs
greatly across experiments with the smoking participation price elasticity of demand ranging from
−1.83 to −0.10. The weighted average across the four states is
−0.49, a number close to previous estimates. We also find that the tax hikes increased birth weight and decreased the risk of low birth weight and these
changes occur almost immediately after the tax hike is imposed. We use two-stage least squares 2SLS to calculate the impact of smoking on birth outcomes.
Pooling the data from states with precise first-stage estimates, we find that smok- ing during pregnancy reduces birth weight by 182 grams and increases the
chance of a low birth-weight estimate by 7 percentage points. Our results are statistically similar to OLS estimates, suggesting that the omitted variable bias
is not severe in single equation models where maternal smoking is treated as exogenous.
II. Background
