Corrective Taxes and Cigarette Characteristics.
If cigarette design was exogenous, inefficiencies arising from smoking could be addressed either with a tax per packet or with an ad valorem tax. However, it is well known that the consequences of these two instruments differ when product characteristics are endogenous. We consider three such characteristics: nicotine, tar, and flavor. Implementation of the first-best social optimum typically requires the capacity to tax or regulate harmful ingredients. Without such a capacity, the next-best policy often combines a per-unit tax on cigarettes with an ad valorem subsidy. Copyright © 2015 John Wiley & Sons, Ltd.
School of Economics and Finance, Victoria University of Wellington, Wellington, New Zealand.
Paul
P
Calcott
School of Economics and Finance, Victoria University of Wellington, Wellington, New Zealand.
Vladimir
V
Petkov
D003132:Commerce / Q000191:economics*; D006801:Humans; D018803:Models, Economic; D011640:Public Policy; D012907:Smoking / Q000009:adverse effects; D013660:Taxes / Q000706:statistics & numerical data*; D062789:Tobacco Products / Q000009:adverse effects / Q000706:statistics & numerical data*
cigarette design; corrective taxes; internalities