The impact of clean indoor-air laws and cigarette smuggling on demand for cigarettes: an empirical model.

This study examines the impact of clean indoor-air laws and smuggling activities on states' per capita cigarette consumption and revenues by using a static demand model. The analysis was based on data for 50 states and the District of Columbia (DC) of the United Sates over the period 1970-1995. The estimated price elasticities of demand for cigarettes ranged from -0.48 to -0.62, indicating that a 10% increase in price would reduce consumption per capita by 4.8% to 6.2%. Anti-smoking laws had a significant negative impact on per capita consumption. In 1995, consumption was reduced by 4.7 packs per capita among states with anti-smoking laws, or 1.1 billion fewer packs of cigarettes consumed. Both short-distance smuggling between neighbouring states and long-distance smuggling from Kentucky, North Carolina and Virginia existed and were significant. Smuggling activities from military bases and Indian reservations, however, were not significant. On average, 6% of states' tax revenues were lost due to smuggling activities in 1995. Results also showed that short-distance smuggling was less important than long-distance smuggling as a source of the revenue loss. Copyright 2000 John Wiley & Sons, Ltd.