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To Vape or Not to Vape: When an E-cigarette Tax Has an Impact

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To Vape or Not to Vape: When an E-cigarette Tax Has an Impact

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The article titled "To Vape or Not to Vape: When an E-cigarette Tax Has an Impact," published on March 20th, 2024 by Sarah Magnus-Sharpe analyzes the impact of the implemented tax on e-cigarettes by the state of California on the consumption levels of e-cigarettes by underage users.

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The study that was conducted by Cornell found that the tax caused a short-term reduction in the posts that were created by underage users of e-cigarettes, but the postulations of the reduction of long-term effects were weak. The article then provides the argument that although the tax implementations did not reduce the harmful long-term effects of underage users use of e-cigarettes, it did reduce vaping initially under the the assumption that the amount of posts that users posted about vaping equated to the frequency of e-cigarette use.

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Brief Overview of Main Points Discussed in this Article

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Brief Overview of Main Points Discussed in this Article

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Tax implementations can have some lasting short-term impacts, but overall the long-term impacts of e-cigarette use can be difficult to minimize merely through a tax on e-cigarettes.

Some researchers believe that a form of government intervention that could be effective within this issue is the design of a tax that impacts young people the most as opposed to older groups.

A combination of increased taxes on these products and additional government intervention may be the only reasonable manner in which the problem can be effectively solved.

These economic concepts fall under the broader economic assumption that as long as the price for e-cigarettes is raised, the demand for them will decrease amongst younger people who are unwilling to pay more for e-cigarettes while the quality remains the same.

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These graphs help us understand the change in supply/demand of e-cigarettes when the market is shocked by a "sin tax."

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Sin Taxes are one way that governments can affect supply or demand in a market. Changing the price of a good like nicotine or alcohol for example, can increase or decrease the demand for the product. This is what we see happen in the article titled "To Vape or Not to Vape: When an E-cigarette Tax Has an Impact." The article mentions several economic concepts such as taxes, price shocks, supply and demand changes, elasticity of demand, and a few more.

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Comparison with traditional cigarette taxes

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Comparison with traditional cigarette taxes

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In the past, cigarette taxes have been used to lower the number of people who smoke, especially young people. Like how e-cigarette taxes worked at first in California, cigarette taxes worked at first to lower smoking rates, especially among teens and young people. But these taxes may not have as much of an effect at first because people get used to paying more, and businesses may try to counteract these taxes by selling more. In the same way, the study by Kadiyali and Anand found that the smoking tax temporarily decreased the number of social media posts about vaping by teens, but this effect did not last. This example shows how tax policies and other measures, like limits on advertising, need to be changed all the time to get people to stop doing harmful things for good.

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One similar example is taxing alcohol to stop people under 21 from drinking. In many places, higher taxes on alcoholic drinks have been linked to fewer teens and young adults drinking. This is because the higher prices make people less likely to drink. The effects of alcohol taxes can be lessened, though, just like with vaping in California, if companies advertise more or if people buy alcohol from illegal sources. This comparison shows that tax-based deterrents might not work well for goods that have a lot of support from marketers and a lot of customers. To make the tax work better over time, policymakers may think about combining it with strict rules and tracking of marketing.

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One of the most apparent consequences that happens with an e-cigarette tax is users going back to normal cigarettes even if they were trying to quit them. This a negative externality that comes from decreased health of the public with a product that is meant to lower tobacco use. There is also a large information imperfection when it comes to the risk of e-cigarettes, with many users and even some experts not knowing the full affect of e-cigarettes.

The tax that are on these nicotine products result in a shift of the supply towards the socially optimal equilibrium. The tax may not have a smaller quantity equilibrium that the standard equilibrium would predict.

The standard market equilibrium does not account for any positive or negative externalities, and these markets are heavily affected by negative externalities. The limited knowledge of negative health effects of e-cigarettes which may limit the implications of a change of price or tax.

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The implementation of taxes on e-cigarettes that was meant to reduce the use of those products has unintentionally turned people to find alternatives such as normal cigarettes.

The unfortunate side effect of this new tax could potentially lead to worse overall health for the public due to the heightened use of cigarettes in response to the tax. The government is one winner in this situation because they raise revenue for themselves, gaining money from the tax. Losers of this tax are the users of e-cigarettes due to the increased price for the product.

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The first graph shows the effect of an increase in taxes on the quantity and supply of e-cigarettes. As we can observe, an increased tax on e-cigarettes increases the price of the product, decreases the quantity, and shows up in the supply of the product initially. The burden of the tax is levied between both consumers and producers, with the distribution of the burden decided by the elasticity of demand. If the product is relatively inelastic, for example, consumers will share more of the burden because they will continue to buy the product at a similar rate, even after the price increase.

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Next, the change in price changes the quantity demanded among consumers. When price increases, the demand of a product decreases. This can be seen in the second graph. The article titled "To Vape or Not to Vape: When an E-cigarette Tax Has an Impact" talks about several research studies that come to a very similar conclusion. The increase in price through taxes caused a decrease in the demand for e-cigarettes; but only for a short period of time. The article's conclusion was that researchers need to keep studying this market and continue to look for a better solution to limit young people from buying e-cigarettes.

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Changing the demand for consumers by using taxes is relatively easy, but changing demand for specifically young people is the current challenge. I would suggest that demand for nicotine products is relatively inelastic, and a change in price that is less than 5% will likely not change demand by a significant amount for any age group. An alternative approach to this problem could be spending more time limiting the amount of underage people that purchase the products by better identifying fake id cards.

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Elasticity and inelasticity of demand refer to the degree to which demand responds to a change in an economic factor. Price is the most common economic factor used when determining elasticity. As mentioned before, products with inelastic demand have a relatively constant quantity demanded when the price of a product changes. On the other hand, products with elastic demand will have a large change in quantity demanded when prices increase or decrease.

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The article mentions several recent economic studies that have been done on the use of e-cigarettes after an increase in price. They concluded that an increase in taxes on nicotine products decreased demand for a short period of time, before it rebounded back to its normal level. This tells us that the demand for nicotine is relatively inelastic, and it is difficult for the government to change demand with taxes.