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American Economic Journal: Economic Policy: Vol. 5 No. 1 (February 2013)

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Smoke Gets in Your Eyes: Cigarette Tax Salience and Regressivity

Article Citation

Goldin, Jacob, and Tatiana Homonoff. 2013. "Smoke Gets in Your Eyes: Cigarette Tax Salience and Regressivity." American Economic Journal: Economic Policy, 5(1): 302-36.

DOI: 10.1257/pol.5.1.302

Abstract

Recent evidence suggests consumers pay less attention to commodity taxes levied at the register than to taxes included in a good's posted price. If this attention gap is larger for high-income consumers than for low-income consumers, policymakers can manipulate a tax's regressivity by altering the fraction of the tax imposed at the register. We investigate income differences in attentiveness to cigarette taxes, exploiting state and time variation in cigarette excise and sales tax rates. Whereas all consumers respond to taxes that appear in cigarettes' posted price, our results suggest that only low-income consumers respond to taxes levied at the register. (JEL D12, H22, H25, H71, L66)

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Authors

Goldin, Jacob (Princeton U)
Homonoff, Tatiana (Princeton U)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
H22: Taxation and Subsidies: Incidence
H25: Business Taxes and Subsidies including sales and value-added (VAT)
H71: State and Local Taxation, Subsidies, and Revenue
L66: Food; Beverages; Cosmetics; Tobacco; Wine and Spirits

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