Cigarette Taxes

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Honors Economics
8 October 2012
Cigarette Taxes
The interest in cigarette taxes and their effects have been a hot topic in relation to the economy for the past 20 years. People question whether or not increased taxes really affect the demand. Do the taxes cause effects other than a change in demand? Who does this ultimately effect, the rich or poor? Where does the money go? So why does the government decide to impose higher cigarette taxes? They do this for two main reasons. One reason is to reduce the number or smokers. The second reason is to increase government revenue. The biggest problem with this though it that studies have found that raising taxes does decrease users therefore decreases the amount of revenue coming in. The big question with increasing cigarette taxes is will it really have the desired effect of decreasing the demand. There are two sides to this. One side says that the price is most defiantly elastic in demand. However, there are others who say that once a smoker always a smoker, no matter the cost. Some of the facts to support the decrease show the highest change in youth smokers. For example, for every ten percent increase in the price of a pack of cigarettes, youth smoking rates overall drop about seven percent. Another shocking effect taxes had on cigarette consumption was in 1985 where the tax increase had more of an effect on the consumption than did the health scare created by the government in the 1960’s in Surgeon General’s reports.Although I was not able to find reliable sources to prove the demand to be inelastic, from what I have observed, initially people cut back or attempt to quit but the diehard smokers eventually give in and continue to pay the increased amount. An increase in cigarette taxes can also have other effects, some being undesired. An example of an undesired effect would be smuggling. Smuggling began centuries ago in the 1300s...
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