G-4 version2 - CigaretteExciseTaxStudy

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Cigarette Excise Tax Study Prepared for the Virginia Department of Taxation September 30, 2009 Alyssa Mesich Patrick Nicholson Charles Musser
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Table of Contents Executive Summary . .......................................................................................................... 2 Background . ...................................................................................................................... 3 Methodology . .................................................................................................................... 3 ......................................................................................................... 6 Recommendations . ............................................................................................................ 7 Qualitative Effects . ............................................................................................................ 9 ............................................................................................................................................. Conclusion. ....................................................................................................................... 10 References. ....................................................................................................................... 12 Appendix A. ...................................................................................................................... 14 Appendix B. ...................................................................................................................... 16 Appendix C. ...................................................................................................................... 17
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Executive Summary The   following   cigarette   excise   tax   study   was   conducted   for   the   Virginia  Department of Taxation to help address the state revenue shortfall and increase annual  cigarette tax revenue to $600 million.  A secondary issue addressed is how a cigarette tax  will curb teen smoking. Using a proprietary model, we estimate the price elasticity of demand for the state  of Virginia at -0.4996, requiring an associated increase in excise per pack to $1.273 to  generate $600 million in tax revenue. The increase in price will cause a fall in cigarette consumption.  Overall, quantity  of cigarette demand is projected to fall 10.36%, or 46 million packs.  For teens, using a  price elasticity of demand estimate of -0.7, an estimate supported by several government  agencies and research organizations, we estimate a decline in consumption of 14.51%.   3
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Background The state of Virginia enacted its current 30 cents per pack excise tax in August  2005.  Net state tax collections in fiscal year 2009 totaled $168 million, a far cry from 
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This note was uploaded on 05/24/2011 for the course ECON 488 taught by Professor Brunton during the Spring '11 term at James Madison University.

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G-4 version2 - CigaretteExciseTaxStudy

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