Association for Public Policy Analysis & Management

Smoking is the leading cause of preventable disease and death in the U.S. E-cigarettes are relatively new products in tobacco markets. Use of e-cigarettes has surged since their entry into the U.S. tobacco market in 2007. Indeed, as of 2017, 15.5% of U.S. adults have used these products. However, the extent to which e-cigarette use will help or harm public health is unclear. The available clinical evidence suggests that e-cigarettes are substantially less harmful than tobacco cigarettes and can be used for cessation purposes. Many public health advocates claim, however, that e-cigarettes will act as a gateway to smoking and that these products are much more harmful than the clinical literature suggests. Given this background, U.S. state and local policymakers have approached the rapid growth of e-cigarette use (‘vaping’) skeptically and have passed numerous e-cigarette regulations including taxes. Policymakers argue that these regulations will reduce e-cigarette use and, in turn, improve public health. These regulatory actions imply that state and local policymakers believe e-cigarette use is harmful with minimal cessation or harm reduction potential.

However, until very recently, there has been little exogenous policy variation and real-world data on e-cigarette consumption to allow quantification of the hypothesized relationship between e-cigarette taxes and use of these products. Further, the extent to which e-cigarette taxes may influence tobacco cigarette smoking and/or dual use of tobacco cigarettes and e-cigarettes is largely unknown. This dearth of evidence is troubling given the complex and heterogeneous reasons consumers use e-cigarettes. For example, if e-cigarettes are effectively used by smokers to quit tobacco entirely or to consume nicotine (the addictive ingredient in tobacco products) in a less harmful manner, then policies that curtail e-cigarette use, such as taxes, may lead to increased smoking and worse public health. On the other hand, if e-cigarettes are used to circumvent smoking bans, deter cessation, and/or promote smoking through gateway effects, for example, then taxes may improve public health.

In this study we provide new, timely, and important evidence on the effects of e-cigarette taxes among adults. To do so, we combine two large-scale restricted-use survey datasets – the Behavioral Risk Factor Surveillance Survey 2016-2017 and the National Health Interview Survey 2015-2017 – with data on state and local e-cigarette taxes adopted in 11 states and DC. Using differences-in-differences style models that control for wide-range of individual-level and state-level factors, we estimate the effect of e-cigarette taxes on e-cigarette use, tobacco cigarette use, and dual use of these products among adults. Our findings suggest that e-cigarette taxes reduce vaping and increase tobacco cigarette smoking. There is heterogeneity in e-cigarette price-elasticity and cross-price elasticity: effects are largest among men and younger adults. In an extension, we also show that increased tobacco cigarette taxes increase e-cigarette use.

Our findings suggest that e-cigarettes and tobacco cigarettes are substitutes. Thus, policies that are aimed to curtail e-cigarette or tobacco cigarette use may have the unintended consequence of increasing use of the substitute product. Policymakers must consider the complex relationships between these products when implementing regulations.