Mind the Gap: Changes in Cigarette Prices after California's Tax Increase

Abstract

Objective: In this study, we investigated whether California's 2017 cigarette tax increase was passed onto smokers equally. Methods: Auditors recorded 4 cigarette prices in the same random sample of licensed tobacco retailers (N = 1049) before the tax increase (January-March 2017) and after (April-September 2018): Natural American Spirit (ultra-premium), Newport menthol (premium), and Pall Mall (value) all from the same manufacturer, and Marlboro (premium). Ordinary least squares regressions examined how the gap in prices varied by market segment and neighborhood demographics, controlling for store type and months since implementation. Paired t-tests assessed whether industry/retail revenue increased. Results: Over-shifting (increase greater than tax) was evident for all 4 brands and was significantly greater for ultra-premium (Mean = $0.40, SD = 0.75) than premium (Mean = $0.25, SD = 0.78) and greater for premium than value brand (Mean = $0.16, SD = 0.67). However, under-shifting (increase less than tax) was evident for Newport in African-American neighborhoods and Pall Mall in Hispanic neighborhoods. After the tax increase, prices were significantly more likely to be discounted and significantly more stores advertised a discount on cigarettes. Conclusion: California's tax increase was not passed onto consumers equally. Non-tax mechanisms to increase price could support intended effects of tobacco taxes.