The Impact of E-Cig Taxes on Smoking Rates: Evidence From Minnesota

Bottom Line: Minnesota's 95 percent e-cigarettes tax is a natural experiment to examine the impact of e-cig taxes on smoking rates. Consistent and robust evidence demonstrates that the Minnesota e-cig tax increased adult smoking relative to what it would have been in the absence of this tax. This finding suggests that similar e-cig taxes in other states will also reduce the smoking quit rate nationwide.

This study provides some of the first rigorous evidence on how taxing e-cigs impacts smoking cessation among adults. It finds strong evidence that higher e-cig taxes increase adult smoking rates and reduce quits. This conclusion implies that e-cigs are a likely substitute for conventional cigarettes among current smokers.

Specifically, the 95 percent e-cig tax in Minnesota, the first such tax increase in the nation, led to a decrease in cigarette smoking cessation by about 1.14 percentage points -- approximately a 5 percent increase in relative smoking participation. In fact, virtually all of the increase in current smoking prevalence in Minnesota is associated with the e-cig tax and the associated decrease in successful quits.

The results find that in the sample period about 32,400 additional adult smokers would have quit smoking in Minnesota in the absence of the tax. If this tax were imposed on a national level about 1.8 million smokers would be deterred from quitting in a ten year period. The taxation of e-cigarettes at the same rate as cigarettes could deter more than 2.75 million smokers nationally from quitting in the same period. 

This finding bolsters a wide body of existing evidence that e-cigs are an effective substitute for smoking, particularly for smokers who have had a difficult time quitting in the past through other methods.

Some commentators have suggested that e-cigs should be taxed at the same rate as cigarettes. Implementation of that policy would raise the price of e-cigs by approximately 62 percent, increasing smoking participation by 8.1 percent, and have widespread consequences for public health. 

Read the full study here.