Taxation

Summary of “Do Lower Cigarette Taxes Increase Smoking? Evidence from the Canadian National Experiment”. Anindya Sen and Nafeez Fatima[1]

The Canadian government and the governments ofOntario, Quebec, New Brunswick, Nova Scotia, and Prince Edward Island reduced excise tobacco taxes by 4-60 percent in 1994 in order to respond to widespread tobacco smuggling. The excise taxes in the otherfive provinces, however, remained relatively unchanged.
The article written by Anindya Sen and Nafeez Fatima, using cross-sectional data from the 1991 to 1999, analyzes the effects of lower taxes ondaily smoking. It attempts to answer the question whether or not lower cigarette taxes increase smoking.
Cigarette taxes in the United States and Canada are currently at historical highs. As aconsequence, it is feared that significant interstate or interprovincial differentials might result in smuggling, an extensive black market, and a loss in government tax revenue. In order to preventblack market, the state may choose to lower taxes. However, it is important first to evaluate the key consequences of lower taxes, to know whether or not lower cigarette taxes significantly increasestobacco consumption in society.
The article points out that there is not enough empirical literature on the consequences of lower taxes since most of the studies have focused on the effects ofhigher taxes in the United States and European countries. Therefore, a study about the effects of lower taxes in Canada is very interesting.
The facts are that after the government of Canadaand some of his province significantly reduced excise taxes on cigarettes in order to curb the smuggling, the smuggling did decrease. The obvious cost to this policy of tax reductions was thepossibility of increased consumption of cigarettes and the corresponding health consequences.
The study carried out by Anindya Sen and Nafeez Fatima suggests considerable heterogeneity across gender...