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An Inspection of Cigarette and E-Cigarette Consumption: Product Regulations,

Education, and Transportation Accessibility

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An Inspection of Cigarette and E-Cigarette
Consumption: Product Regulations,
Education, and Transportation Accessibility

Brian Fong

Professor Jason Wong

Applied Econometrics
Department of Economics, Occidental College

April 29, 2022

ECON 272
INTRODUCTION 1

1 Introduction

As stated in a recent investor conference call from the leading tobacco organization in the
United States, the tobacco space is evolving with both its products and the regulatory
framework that surrounds innovative product releases. With excise tax increases, smoker
movement to other categories, and industry cigarette volume decline rates, non-combustible
categories such as oral tobacco and e-vapor have become a larger portion of the tobacco
space. However, with this market transformation, governments and agencies are bound to
respond with appropriate regulations in order to restrict underage use while promoting to-
bacco harm reduction.
In addition to pre-market pathway regulations, state and local governments often seize
opportunities to generate tax revenue by implementing various types of taxes (e.g. sales,
value-added, ad valorem) on all tobacco products, albeit at different rates. Given such rise in
non-combustible products, there are questions on what the appropriate rates are and whether
they actually incentivize switching to potentially less harmful products. Past research has
consistently concluded that contemporary marketed products exist on a risk continuum,
or risk cliff, such that electronic nicotine delivery systems (ENDS) are pose less risk when
compared to combustible cigarettes. Relating to purchasing power of tobacco consumers,
this research paper considers not only taxes implemented on cigarettes, but also the taxes
implemented on ENDS, or e-cigarettes (the intended substitute product). For example, we
consider the impacts of both cigarette and e-cigarette taxes on cigarette and e-cigarette con-
sumption, respectively. Precisely, taxes are defined as a states’ tax rate per pack of cigarettes
in 2019 and e-cigarette pack in 2020.
The second set of independent variables this research paper focuses on include educa-
tion and gas prices. Utilizing Ordinary Least Squares regression analysis, this research aims
to test how significant (if any at all) these independent variables contribute to cigarette
and e-cigarette consumption. If significant, I produce the relative marginal effects of such
independent variables and their contribution to product usage. Inspecting cigarette con-
sumption, I also include an interaction term between education and e-cigarette state-tax
rates per pack, to view any possible additional effect on the two independent variables. Con-
versely with e-cigarette consumption, I include an interaction term between education and
cigarette state-tax rates per pack to view any analogous effect.
Another motivating factor for this research is how popular tobacco harm reduction has
become within the health economics field. Tobacco policy has always been a relatively small
topic within health economics. But with the rise of alternative products and its public policy
INTRODUCTION 2

implications, questions arise on how to efficiently scale and distribute these products gener-
ating positive health outcomes among society. Running these regressions can contribute to
existing research by incorporating several variables that may have been run independently,
but not together, as interaction terms which demonstrate any intersectional effects.
This research attempts to answer the question of to what extent state-level tax rates
on ENDS products associate with combustible tobacco product usage. Conversely, how do
state-level tax rates on combustible products associate with ENDS usage? In so answering,
this aims to inspect whether such regulations on tobacco products are conducive or coun-
terproductive toward achieving harm reduction in America. As such, the two dependent
variables in two separate regression equations are cigarette consumption and e-cigarette con-
sumption. We measure cigarette consumption based on the Center for Disease and Control’s
(CDC) National Survey on Drug Use and Health. With this survey data, the CDC has
created a rigorous index that aggregates adult cigarette usage segmented by states. With
cigarette consumption, independent variables such as education is measured by aggregated
high school graduation rates in 2019, while gas prices encompass statewide average prices in
2019. This research measures E-cigarette regulations by each state’s tax rate per e-cigarette
pack in 2020, while cigarette regulations are each state’s tax rate per cigarette pack in 2019.
These factors should be relevant to the research question because they all theoretically influ-
ence usage of a product. Taxes should deter consumption, while higher gas prices intuitively
should deter tobacco use as result of weaker accessibility to stores. Education should have
a negative marginal effect on tobacco use due to higher awareness of the risks posed with
smoking and inhaling potential carcinogenic toxicants.
This research produces results that align with hypothesized signs. At the same time,
most independent variables were not statistically significant, but theory on their association
with tobacco consumption remain legitimate based on prior research. Specifically, cigarette
taxes and gas prices were the two significant variables pertaining to cigarette consumption in
the core model. No variables for the core e-cigarette equation generated statistically signifi-
cant results despite the coefficients following theorized signs. But when simplifying the model
and dropping the interaction term between regulations and education, cigarette taxes on e-
cigarette consumption become statistically significant at the one percent level. A broader
understanding of these variables and their impacts on tobacco consumption can aid regu-
lators on how to best approach tobacco regulation from the perspective of the appropriate
protection of public health.
LITERATURE REVIEW 3

2 Literature Review

As the field of health economics expands, and with it, more research on varying tobacco
products, there exists a clearer opportunity to advance harm reduction through appropriate
and risk-proportionate regulation. Past research has revolved around three broad strands.
First, tobacco taxes and related regulations’ associations with product users’ perceptions of
product risks is an important element in identifying whether consumers are responsive to
such measures. Second, existing literature regarding tobacco regulations’ effects on youth
usage demonstrate how effective government intervention can be. If said measures do not
reduce youth usage, this unintended consequence remains a hindrance toward achieving opti-
mal harm reduction in America. Finally, past research addresses illicit trade and importation
of tobacco products, another unintended consequence which may result from inappropriate
regulations. These three research components can reveal effective government policies which
promote harm reduction, while demonstrating the delicate balance associated with regulat-
ing highly inelastic and addictive products.
Among contemporary society in which cigarette taxation is universal, governments have
to utilize social cost-analysis in order to balance societal impact and smoker tendencies.
When governments levy taxes on cigarettes specifically, they have three objectives: revenue,
efficiency, and deterrence (Zimring, Nelson, 1999). Whereas revenue describes societal accep-
tance towards the government collecting a fee from perceived unessential consumer goods,
efficiency refers to artificially raising prices to equilibrium where social cost equals price of
cigarettes. Intuitively, deterrence stems from the government or legislators viewing cigarettes
as harmful products from a health perspective; meaning as price of cigarettes increases, quan-
tity theoretically should decrease. In Zimring and Nelson’s research, they determine that
while the average price elasticity of demand for cigarettes is -0.45, tax policy may have
a greater impact on lower socioeconomic group citizens. Furthermore, they conclude that
taxes affect adults and teenagers differently, with less of an effect on teen purchasing be-
havior (Zimring, Nelson, 1999). However, more recent research demonstrates that taxes do
deter teenage usage by generating a more negative perception towards the product (Friedson
et al., 2021). Friedson et al. conclude that smoking regulations, including taxes, mitigate
smoking participation rates into adulthood. Moreover, they determine a negative causal
effect between teenage tax exposure and later-life mortality rates (i.e. the more exposure
to cigarette taxes at a teenage age, the lower smoking-related mortality rates when older).
The different conclusions reached from Friedson et al. and Zimring and Nelson’s respective
research can be explained by the latter’s research methodology incorporating only one study
LITERATURE REVIEW 4

which tested teenage elasticity (Wasserman, et al. 1991). Broader and more comprehensive
data on teenage tobacco usage, such as the National Youth Tobacco Survey (NYTS), formed
in 1999, after the Wasserman study.
The second literature strand related to researching the intersection between tobacco harm
reduction and public policy surrounds underage consumption. Connecting back to Zimring
and Nelson’s research stated objectives, government regulations, in part, attempt to deter
tobacco use from all consumers, including adolescents. Analyzing the effect of minimum
legal sale age (MLSA) e-cigarette laws on youth cigarette smoking rates, Dave, Feng, and
Pesko (2019) suggest a possible unintended effect from the laws that raise youth smoking
rates by approximately one percent. The study also analyzes how differing MLSA regula-
tions on alcohol and marijuana use do not appear to associate with lower or higher youth
smoking levels. Other studies reach similar conclusions concerning a rise in smoking rates
when governments increase regulations on ENDS products. For example, a research project
conducted utilizing fixed effects regression analysis inspecting ENDS MLSA legislation on
tobacco and marijuana use. While such restrictions on ENDS did not impact youth cigar,
smokeless tobacco, or marijuana consumption levels, cigarette use increased by 0.8 percentage
points (Pesko, Hughes, Faisal, 2018). Compared to the aforementioned study, this research
will utilize ordinary least squares (OLS) regression analysis in order to test hypothesized
effects and statistical significance of tobacco taxes, education levels, and gas prices. Past
research on cigarette regulations on adolescent tobacco use proved to accomplish deterrence
goals. Analyzing the Food and Drug Administration’s (FDA) 2009 ban on flavored cigarettes
yields a decrease in 17 percent probability of becoming a cigarette smoker, 59 percent fewer
cigarettes consumed by existing cigarette smokers per month, and 6 percent decrease in the
probability of using any tobacco product (Courtemanche, Palmer, Pesko, 2017). The studies
by Courtemanche et al. and Pesko et al. demonstrate how cigarette regulations, as opposed
to e-cigarette regulations, have historically been more successful in decreasing tobacco use.
Finally, recent research corroborates the resulting unintended consequences from over-
bearing e-cigarette taxes on youth tobacco use. Abouk et al. (2021) study youth tobacco use
in a regression model featuring ENDS and cigarette use as the dependent variable, as well
as include ENDS taxes, a policy adjustment variable, and a covariate matrix encompass-
ing demographics (gender, age, grade, race) as the independent variables. They conclude
that ENDS taxes reduce underage e-cigarette consumption, but an increase in cigarette us-
age suggests economic substitution between the two types of products. The four relevant
studies in the second strand provide a broad inspection of varying tobacco regulations on
e-cigarette and cigarette adolescent use rates. While this research does not specifically com-
prise demographics into a matrix, it adds education levels and gas prices into the regression
LITERATURE REVIEW 5

specification, intending to capture transportation and education effects on tobacco consump-

tion, paired with existing government regulations.
A third branch of interactions between tobacco harm reduction and public policy re-
volves around regulations’ associations with illicit tobacco activity in the United States.
Existing literature points to tobacco tax evasion and avoidance, in addition to cross-border
transactions as growing issues that undermine government objectives and increase potential
dangers from tobacco use. As a result, the research concludes four solutions to mitigate
illicit tobacco trade including increasing enforcement efforts and penalties, setting minimum
tax rates on legally sold tobacco products, ”increasing control over the supply chain,” and
educating the public on illicit tobacco trade consequences (Chaloupka et al., 2015, 41). In
accomplishing harm reduction, this study corroborates previously mentioned works by sug-
gesting relatively minimal taxes can encourage safer consumer practices. In a separate study,
the authors analyze how FDA restrictions on nicotine level of cigarettes can induce a more
potent illicit marketplace, while suggesting strategies to alleviate such consequence. Though
limiting nicotine levels should reduce short-run usage and related harms, smokers seeking a
higher level would still obtain their desired products through illicit means. Thus, regulating
bodies should simultaneously heighten enforcement efforts by increasing punitive measures
for illicit activity, improving encrypted stamp-tax technology, and tightening cross-boarder
package screenings (Ribisl et al., 2019). When inspecting regulations’ effects on illicit tobacco
trade, both studies suggest that regulations on tobacco products, if paired with preventative
measures, can adequately promote harm reduction.
Taken altogether and given existing research, more research needs to be done to view
these specific elements together. For example, because states only recently started taxing
e-cigarettes, the standardized system to compare statewide taxes became published only in
2022. No research has combined cigarette taxes and a e-cigarette standardized tax database,
while taking into account other societal and environmental metrics such as education and
gas prices. Thus, this research can provide a clearer and deeper understanding of these
interactive variables, specifically for tobacco consumption, which has existed hundreds of
years. While there will be gaps that continue to exist in tobacco regulation appropriate for
the protection of public health, this research showcases consumer preferences and behavior
in a more direct fashion, hopefully leading legislators to consider appropriate research in
regulating products to advance tobacco harm reduction.
METHODOLOGY 6

3 Methodology

Econometric Model and Hypotheses

As considered above, the intention of this project is to formulate and test a model that
represents cigarette and e-cigarette consumption based upon their respective regulations and
tax rates, citizen education levels, gas prices, and an interaction term between education and
product regulation. I am particularly concerned with the marginal effect of the interaction
term because it can provide inferences of a twofold effect on tobacco consumption when
considering graduation rates and the policy in action. In developing the model, I utilize
constant independent variables, excluding the interaction term, across measures of cigarette
and e-cigarette consumption.
I represent cigarette consumption in a linear regression equation where Cconsi represents
the amount of cigarettes consumed in state i in 2019. Let cRegi and eRegi denote the tax rate
per cigarette and e-cigarette pack in state i in 2019 and 2020, respectively. It is important
to note that eRegi is a dummy variable, with eRegi = 1 if state i has a standardized tax rate
in 2020, and eRegi = 0 if state i does not has a standardized tax rate in 2020. The model
considers two other factors, educi , aggregated high school graduation rates of state i in 2019,
and gasi , statewide average gas prices of state i in 2019. Our term of interest, eRegi *educi ,
denotes a measure of whether the impact of e-cigarette taxes on cigarette consumption rises
as graduation rates rise.

Cconsi = β0 + β1 (cRegi ) + β2 (eRegi ) + β3 (educi ) + β4 (gasi ) + β5 (educi ∗ eRegi ) + εi

The regression equation for e-cigarette consumption in state i utilizes the same independent
variables and functional form as the cigarette consumption equation. The only difference
being the interaction term, cRegi *educi , which indicates a measure of whether the impact of
cigarette taxes on e-cigarette consumption rises as graduation rates rise.

Econsi = φ0 + φ1 (cRegi ) + φ2 (eRegi ) + φ3 (educi ) + φ4 (gasi ) + φ5 (educi ∗ cRegi ) + υi

For both equations, the hypothesized signs for regulations (taxes) is negative on the
corresponding good. For example, it is expected that higher cigarette taxes have a marginal
negative effect on cigarette consumption because theory follows that taxes intuitively should
deter consumption of that good. Analogous, eReg should be negative for Econs following the
same logic. Because past research has proven that e-cigarettes and combustible cigarettes are
economic substitutes, this paper anticipates that the opposing regulation will have a positive
marginal effect (i.e. the more e-cigarette taxes, less e-cigarette consumption, but more
DATA 7

cigarettes smoked. Conversely, the more cigarette taxes, the less cigarettes consumed, but
more e-cigarettes vaped). Education should be negative because more educated people should
be using less tobacco products because of perceived health-risks; high school graduation
rates can be a metric for education because health education is often required across states
for graduation. Similarly, gas is hypothesized to be negative because higher gas prices
can associate with disincentive to drive and go to tobacco stores. In this context, less
accessibility to convenient transportation should associate with less tobacco consumption.
For the interaction terms, β5 is hypothesized to be negative while φ5 positive. Given that the
elements of the interaction terms are opposing signs, it can be inferred that the one with a
more significant impact will dictate the coefficients’ signs. Cigarettes have been much more
ingrained in health education curriculums than e-cigarettes given the latter good’s novelty
to the market. As a result, this paper infers that education has a greater impact in deterring
cigarette consumption than ENDS consumption, which explains the opposing signs for the
β5 and φ5 .

4 Data

Data Collection and Analysis

The manually comprised data set used in this research encompasses all fifty states (and the
District of Columbia) in the United States. The two dependent variables are cigarette con-
sumption levels (Ccons) and e-cigarette consumption levels (Econs), while the independent
variables include state average high school graduation rates in 2019 (educ), state average gas
prices in 2019 (gas), statewide tax rates on each pack of 20 cigarettes (cReg), and standard-
ized statewide taxes on each pack of e-cigarettes (eReg), equivalizing 1 pack of cigarettes to
0.7 milliliters of ENDS liquid.
Cigarette consumption levels among Americans in each state were gathered from the
Behavior Risk Factor Surveillance System (BRFSS) in 2019 (CDC, 2019). The annual sur-
vey conducted nationwide examines alcohol, tobacco, and drug use among adult and youth,
which then aggregates responses into indexed values for each state by the State Tobacco Ac-
tivities Tracking and Evaluation (STATE) System. The cigarette consumption data collected
represents the STATE indexed values for each state’s average user cigarette consumption,
relative to other states. Because the data is gathered from telephone surveys, there can pos-
sibly be sampling and non-response bias from respondents who do not respond accurately
DATA 8

or respond at all. This could result in a lower indexed value for each state, but given the
margin of error, low confidence limit, and high confidence limit, significant effects on re-
gression results are expected to be negligible. The highest values for cigarette consumption,
taking into account lower and upper bounds, was West Virginia at 23.8, while the lowest was
Utah at 7.9. Finally, a strong limitation for this data is that the survey was not conducted
in New Jersey, so cigarette consumption could not be analyzed with respect to this state.
However, with 49 other states and the District of Columbia, this research still provides a
comprehensive understanding of tobacco consumption in America.
E-Cigarette consumption levels among Americans in each state were collected from the
American Lung Association based on CDC analysis from 2017 to 2018 (ALA, 2018). Similar
to cigarette consumption data, this data was collected from the BRFSS through telephone
surveys. As a result, similar limitations exist. This data also indicates the share of each
state’s population using ENDS products between 2017 and 2018. For example, usage propor-
tion was lowest in the District of Columbia at 2.3 percent, while Oklahoma had the highest
share of state population using ENDS at 7.1 percent. Though the individual data points
were individuals, the data has been aggregated into state-level measurements.
Education was measured through statewide high school graduation rates in 2019 and
gathered from U.S. News (U.S. News and World Report, 2019). U.S. News examined nu-
merous high schools in each state, gathered graduation rates for each, and aggregated the
percentages to a statewide average. Arizona had the lowest statewide graduation rate at
75 percent, while Iowa and Kentucky presented the highest at 94 percent each. Limitations
from this data include failures to acknowledge certain regions within states that may skew
results toward a particular direction. For example, California’s relatively large population
to Kentucky may exhibit external factors such as appropriate resource allocation to each
school district. There does not appear to be any outliers.
Gas prices were collected from the Vehicle Technologies Office at the U.S. Department
of Energy which tracked daily changes in retail gasoline price per gallon across 2019 (U.S.
Department of Energy, 2019). By adding each day’s average gas price and dividing by 365,
analysts were able to determine the average retail gasoline price per gallon in each state for
2019. With prices ranging from $2.26 to $3.67 per gallon, Mississippi had the lowest price,
while Hawaii averaged the highest in 2019. Limitations from this data include not reporting
single day or week outlying values, potentially skewing the yearly values.
Cigarette regulations, synonymous with tax rates per pack of cigarettes, were measured
through the yearly average amount added on to each purchase (Cammenga, 2019). Based
on data gathered from Bloomberg Tax, states on average charge $1.73 of taxes per pack of
cigarettes, with the highest charging state being New York and Connecticut at $4.35 per
RESULTS 9

pack, and the lowest being Missouri at $0.17 per pack. Examining the scope of taxes at a
statewide level, this research is able to standardize all other variables in the same dimension.
Performing regression analysis on cigarette regulations will show how taxes affect consump-
tion of cigarettes and e-cigarettes, a theorized economic substitute product. The aggregated
nature of this data limits a deeper examination into how cigarette taxes interact with dif-
ferent cigarette segments and price points (e.g. discount, value, premium, super-premium).
Being able to perform cross-segment analysis would gain further and more valuable tobacco
consumer insights.
E-Cigarette taxes, different than cigarette taxes, are challenging to find data on given
how novel ENDS products are. Because of states’ varying ways to tax e-cigarettes (e.g. sales,
excise, ad-valorem), this research utilizes a standardized tax system which converted to tax
price per fluid milliliter (Cotti et al., 2022). As a result of this standardized measurement of
taxes levied on e-cigarettes, this research can appropriately run regressions using statewide
data from 2019. A notable limitation is that some states have not enacted any form of
taxation on ENDS products. Cotti et al. were only able to standardize forms of regulation
for only states that had previously enacted taxes. States that do not regulate ENDS at
the point of sale do not present data, which limits the amount of data points when running
regressions, and thereby limiting sample size. In order to address this, this research sets the
core model variable eRegi as a dummy variable, with 1 indicating that each state has some
form of tax, and 0 meaning no tax. This would alleviate the sample size concerns while
allowing the opportunity to run secondary regressions to examine whether the more specific
data points (with specific standardized tax points) will change any results.

5 Results

Every model in this research paper follows OLS regression techniques, in addition to check-
ing for violations of classical assumptions including multicollinearity and heteroskedasticity.
Examining the two core equations regression results yields:

Cconsi = 29.23−1.038(cRegi )−4.892(eRegi )−.00874(educi )−3.964(gasi )+0.0571(educi ∗eRegi )

SE: (0.4183) (15.456) (0.1309) (1.4891) (0.1758)
t-score: (-2.48) (-0.32) (-0.07) (-2.66) (0.32)
VIF: (1.54) (1.171 ) (1.101 ) (1.29) (1.16)
1
The VIF for variables included in the interaction terms are calculated from a regression without the
interaction term.
RESULTS 10

N = 49 Adj. R-squared = 0.334

Econsi = 9.40−2.410(cRegi )−0.0570(eRegi )−.00396(educi )−0.281(gasi )+0.0239(educi ∗cRegi )

SE: (1.7207) (0.2463) (0.0476) (0.4300) (0.0198)
t-score: (-1.40) (-0.23) (-0.83) (-0.65) (1.21)
1 1
VIF: (1.51 ) (1.19) (3.61 ) (1.35) (1.47)
N = 50 Adj. R-squared = 0.192
For the core model with respect to cigarette consumption, I concluded that the marginal
effect of cigarette taxes is a -1.038 index value on cigarette consumption, while the marginal
effect of a state having e-cigarette taxes has a higher magnitude impact on cigarette consump-
tion, such that a state with e-cigarette standardized taxes associates with a 4.892 indexed
value decline in cigarette consumption levels. It is important to note that only cReg is statis-
tically significant at the 5 percent level with its p value being 0.017, less than the threshold
of 0.05, while eReg is not statistically significant, with its p value being 0.753. Withholding
statistical significance, the coefficients violate theory and intended effects of such policies if
e-cigarette taxes have a greater impact on decreasing cigarette consumption. Holding gas
prices, cigarette and e-cigarette taxes constant, education is associated with a .00874 unit
decline in cigarette consumption; education is not statistically significant (p value = 0.947).
Gas price is statistically significant (p value = 0.011), showing a -3.964 decrease in cigarette
consumption with a one dollar average increase in prices, ceteris paribus. The interaction
term between education and e-cigarette taxes showed a positive marginal effect on cigarette
consumption, though not statistically significant. The differential impact of an extra unit of
education on cigarette consumption between states having e-cigarette taxes is .0571 units.
The second component to the core model is e-cigarette consumption. No independent
variable, including the interaction term, generated statistically significant results. Results
suggest that with a one-dollar increase in state average cigarette taxes, the share of a state’s
population using e-cigarettes decrease by -2.410 percentage points. States with an existing
e-cigarette tax have a marginal negative effect (.05 percent) on the share of a state’s popula-
tion. Both education and gas have a small negative effect on Econs, namely at -.00396 and
-.281 percent, respectively. The interaction term of cigarette taxes and education interprets
as the differential impact of an extra unit of education on e-cigarette consumption between
states’ average tax price per cigarettes. Despite not generating a statistically significant
result, it has the lowest p value out of all other independent variables in this equation. The
coefficient for the interaction term is .0239, which indicates the intersectional effect between
cigarette taxes and education on e-cigarette consumption (i.e. ENDS consumption increas-
ing by .0239 percent associated with a one-unit increase from cReg x Educ).
RESULTS 11

This research also considers two alternative models to view how cigarette and e-cigarette
consumption is impacted by their respective regulations, education, and gas prices. First,
to inspect more independent effects of education and tobacco regulations, utilizing OLS
regression analysis generates:

Cconsi = 26.23 − 1.058(cRegi ) − 0.119(eRegi ) − .02236(educi ) − 3.847(gasi )

SE: (.4094) (.8224) (0.884) (1.43)
t-score: (-2.59) (0.15) (0.25) (-2.69)
VIF: (1.50) (1.17) (1.10) (1.35)
N = 49 Adj. R-squared = 0.347

Econsi = 5.144 − 0.332(cRegi ) − 0.051(eRegi ) + 0.00850(educi ) − 0.264(gasi )

SE: (.1231) (.2475) (0.0264) (0.432)
t-score: (-2.70) (-0.21) (0.32) (-0.61)
VIF: (1.51) (1.19) (1.10) (1.35)
N = 50 Adj. R-squared = 0.184
When comparing to the core regression equation for cigarette consumption, dropping the
interaction term yields similar results. Only cigarette taxes and gas prices are statistically
significant for cigarette consumption while the magnitudes remained similar with the excep-
tion of eReg, changing from -4.892 to 0.1193, albeit not statistically significant; its standard
error also increased from -0.032 to 0.8224. In addition, no coefficients changed signs (from
- to +). The percentage of variation explained by the model (accounting for changes in the
degrees of freedom) remained similar.
Comparing the core equation for e-cigarette consumption to the adjusted one without
interacting education and cigarette taxes, education changed signs from negative to positive,
though at a slim magnitude, namely from -0.00396 to 0.0085. Additionally, with the adjusted
equation, cigarette taxes became statistically significant at the 5 percent level with a p value
of 0.010. Adjusted R-squared remained the same at 0.184.
The second adjustment to the core model factors in amounted standardized state e-
cigarette tax rates. Because e-cigarettes are a relatively novel product, not every state has
implemented a tax. As a result, the sample size becomes smaller, differentiating the regres-
sion results:
 5.1 Econometric Problems 12

Cconsi = 24.56−1.245(cRegi )+3.793(eReg ndi 2 )+0.07469(educi )−4.634(gasi )+0.0476(educi ∗eReg ndi 2 )

SE: (0.7318) (11.161) (0.2251) (2.5073) (0.1287)
t-score: (-1.70) (0.34) (0.33) (-1.85) (-0.37)
VIF: (1.66) (1.44) (2.42) (1.22) (1.36)
N = 25 Adj. R-squared = 0.285

Econsi = 3.086−0.6378(cRegi )−.17498(eRegn di 2 )+0.0279(educi )+0.0744(gasi )+0.00127(educi ∗cRegi )

SE: (1.636) (0.141) (0.0532) (0.4401) (0.0186)
t-score: (-0.39) (-1.24) (0.52) (0.17) (0.07)
VIF: (1.56) (1.54) (4.53) (1.22) (1.46)
N = 26 Adj. R-squared = 0.607
Comparing to the base model, all independent variables in the diluted sample size model
for cigarette consumption are statistically insignificant. Whereas gas and cigarette taxes
were both significant in the original core model, using the standardized continuous data for
e-cigarette taxes renders all independent variables’ insignificant. Note that the p value for
cigarette taxes in this model at 0.105 is close to the threshold for statistical significance at the
10 percent level. In terms of coefficients’ signs, education marginally changed from -0.0087
to 0.0747. The coefficient for eReg increased from -4.89 to 3.79, but it is critical to recognize
the different context in how eReg is used; for the original model, this research defined it as
a dummy variable to see whether states having any form of e-cigarette tax would impact
cigarette and e-cigarette consumption. In this adjusted equation, the data in eReg is each
state’s per fluid ml e-cigarette tax rate. This distinction could provide the explanation for
the coefficient sign change.
With e-cigarette consumption, the adjusted equation does not change statistical signif-
icance; all independent variables are still statistically insignificant. However, the signs for
gas and education change from negative to positive. This distinction can potentially be
explained by the decreased sample size which does not take into account states without any
form of e-cigarette tax.

5.1 Econometric Problems

In the core model, with mostly statistically insignificant results and low t-scores, this re-
search tests for multicollinearity via the variance inflation factor (VIF), which provides a
2
Variable changed from dummy to continuous, capturing each state’s exact standardized tax price on
e-cigarettes per fluid mL such that not all states have a value, which lowers the sample size.
5.1 Econometric Problems 13

framework for understanding how severe two independent variables in the model correlate.
Through an auxiliary regression where the variable in question is regressed on the other in-
dependent variables of the original equation. The R-squared value is then used to calculate
the VIF. Where a high VIF value indicates that the independent variable is likely to be
explained by the other independent variables, values greater than 5 suggest multicollinearity
within the model. A consequence resulting from the issue is that standard errors become
biased and thus difficult to accurately interpret coefficients. In this research’s core equations
for cigarette and e-cigarette consumption, all the VIF values fall below 5, while education
among the e-cigarette model has the highest value at 3.61. Because we do not anticipate
multicollinearity as defined, there is no need to either increase sample size or drop redundant
variables. This conclusion can be applied to the two alternative regression models, since no
independent variables’ VIF value exceeds 5.
This model could have omitted certain variables that influenced either cigarette or e-
cigarette consumption. For example, tobacco consumption could be determined by family
usage; such a variable could be a dummy variable, namely whether one has family members
who are past smokers. As a result, coefficients could have been biased such that the expected
coefficients do not equal the true marginal effect that they exert on tobacco consumption.
To test for omitted variable bias on the cigarette consumption equation, we use the Ramsey
Regression Equation Specification Error Test (RESET). Running this test for omitted vari-
ables yields a p value of 0.8667, which indicates a failure to reject the null hypothesis that
the model has no omitted variables. In other words, it is likely the core model does not have
much omitted variable bias. The similar conclusion occurs for the e-cigarette model, where p
value = 0.2095, greater than the significance level. As such, it should be noted that therefore
the cigarette consumption model holds stronger as not having omitted variable bias.
To assume more confidence in our coefficients’ marginal impacts on tobacco consump-
tion, and ensure that the standard errors are not biased, this research checks for impure
heteroskedasticity, meaning the variance of the error terms is constant. Because this model
is linear and does not contain a large number of independent variables, the Breusch-Pagan
test detects whether there is heteroskedasticity within the model. The null hypothesis states
there is constant variance among the error terms, generating the Chi-Square test statistic
and corresponding p value. In the core regression for cigarette consumption, the Chi-Square
p value is 0.1394, while 0.8868 for e-cigarettes. In both cases, the values are large enough to
fail to reject the null hypothesis and conclude there is heteroskedasticity is not likely present
in the data.
DISCUSSION 14

6 Discussion

This research paper investigates how tobacco consumption is associated with taxes, educa-
tion levels, and gas prices. It considers two branches among tobacco: traditional combustible
cigarettes and emerging e-cigarettes. Within each segment, the respective regulations are
compared against each other in determining their marginal effect on product consumption.
This research also considers the transportation and educational impact on tobacco consump-
tion levels. Overall, it provides a baseline to analyze tobacco consumption in the United
States and some insight into how these factors influence consumer choices. Additionally, this
paper takes into account several potential violations of OLS regression analysis and performs
the appropriate tests to view their severity.
With respect to results, state average cigarette taxes as well as statewide average gas
prices are statistically significant when regressing against cigarette consumption. Other vari-
ables including if a state has e-cigarette taxes and statewide high school graduation rates
result in hypothesized signs but not at a statistically significant level. For e-cigarette con-
sumption, no independent variables were significant, except when the model was simplified
without the interaction term, in which case cigarette taxes had a statistically significant
impact.The alternative model with continuous values for e-cigarette taxes did not gener-
ate any statistically significant coefficients, but did indicate a higher magnitude coefficient
of e-cigarette taxes and cigarette consumption levels. In essence, the core model results
suggest that cigarette taxes and gas prices are statistically significant factors for cigarette
consumption, while whether a state has e-cigarette taxes, education levels, and e-cigarette
taxes and education are not statistically significant factors. Ideally, the sample size for e-
cigarette taxes would have been all states in the United States, but that was not possible
given current policies.
My research contributes to existing literature by introducing an analysis of tobacco con-
sumption using a combination of new published data on e-cigarette taxes, and fusing it with
environmental and social factors. In the future, as state regulations continue to evolve, more
research needs to be done on more diverse types of tobacco products and their accompany-
ing regulations. Smokeless tobacco such as snus is just one example of a traditional tobacco
product that manufacturers seek to innovate to reduce health risks. In cohesion with regula-
tions, product types, and consumer behavior, there remains more research to be conducted
to ultimate achieve optimal health outcomes while satisfying consumer demands.
BIBLIOGRAPHY 15

7 Bibliography

References

Abouk R., Courtemanche C., Dave D., Feng B., Friedman A., Maclean J. C., Pesko M.,
Sabia J., and Safford S. (2021). Intended and Unintended Effects of E-cigarette Taxes on
Youth Tobacco Use. Tech. rep. w29216. Cambridge, MA: National Bureau of Economic
Research, w29216. doi: 10.3386/w29216. url: http://www.nber.org/papers/w29216.pdf.
Cammenga J. (2021). How High Are Cigarette Taxes in Your State?: 2019 rankings. url:
https://taxfoundation.org/2019-state-cigarette-tax-rankings/.
Chaloupka F. J., Edwards S. M., Ross H., Diaz M., Kurti M., Xu X., Pesko M., Merriman
D., and DeLong H. (2015). Preventing and Reducing Illicit Tobacco Trade in the United
States - cdc.gov. url: https://www.cdc.gov/tobacco/stateandcommunity/pdfs/illicit-
trade-report-508.pdf.
Cotti C. D., Nesson E., Pesko M., Phillips S., and Tefft N. (2022). Standardising the mea-
surement of e-cigarette taxes in the United States, 2010-2020. url: https://papers.ssrn.
com/sol3/papers.cfm?abstract id=4002181.
Courtemanche C. J., Palmer M. K., and Pesko M. F. (2017). “Influence of the Flavored
Cigarette Ban on Adolescent Tobacco Use”. American Journal of Preventive Medicine
52.5, e139–e146. doi: 10.1016/j.amepre.2016.11.019.
Dave D., Feng B., and Pesko M. F. (2019). “The effects of e-cigarette minimum legal sale age
laws on youth substance use”. Health Economics 28.3, pp. 419–436. doi: 10.1002/hec.3854.
Pesko M. F., Hughes J. M., and Faisal F. S. (2016). “The influence of electronic cigarette age
purchasing restrictions on adolescent tobacco and marijuana use”. Preventive Medicine 87,
pp. 207–212. doi: 10.1016/j.ypmed.2016.02.001.
Ribisl K. M., Hatsukami D. K., Huang J., Williams R. S., and Donny E. C. (2019). “Strategies
to Reduce Illicit Trade of Regular Nicotine Tobacco Products After Introduction of a Low-
Nicotine Tobacco Product Standard”. American Journal of Public Health 109.7, pp. 1007–
1014. doi: 10 . 2105 / AJPH . 2019 . 305067. url: https : / / www . ncbi . nlm . nih . gov / pmc /
articles/PMC6603473/.
Wasserman J., Manning W. G., Newhouse J. P., and Winkler J. D. (1991). “The effects of
excise taxes and regulations on cigarette smoking”. Journal of Health Economics 10.1,
pp. 43–64. doi: 10.1016/0167-6296(91)90016-g.
REFERENCES 16

Zimring F. E. and Nelson W. (1995). “Cigarette taxes as cigarette policy”. Tobacco Control
4.Suppl 1, S25–S35. doi: 10.1136/tc.4.suppl1.S25. url: http://tobaccocontrol.bmj.com/
lookup/doi/10.1136/tc.4.suppl1.S25.
TABLES AND FIGURES 17

8 Tables and Figures

Table 1: Summary statistics

Variable Obs Mean Std. Dev. Min. Max.

Gas 51 2.615 .305 2.26 3.67
Educ 51 87.667 4.506 75 94
Econs 51 4.555 .898 2.3 7.1
Ccons 50 16.25 3.295 7.9 23.8
cReg 51 1.785 1.133 .17 4.5
eReg 50 .52 .505 0 1
eReg nd 26 .944 1.022 .05 3.11

Table 2: Cross-correlation table

Variables Gas Educ Econs Ccons cReg eReg eReg nd

Gas 1.000
Educ -0.277 1.000
Econs -0.296 0.157 1.000
Ccons -0.534 0.216 0.538 1.000
cReg 0.467 -0.204 -0.486 -0.538 1.000
eReg 0.112 -0.006 -0.204 -0.161 0.384 1.000
eReg nd 0.257 -0.290 -0.576 -0.376 0.515 . 1.000
TABLES AND FIGURES 18

Core regression results (left) and alternative regression results without interaction term (right),
tables 3 and 4 :

(1) (2) (1) (2)

Ccons Econs Ccons Econs
∗ ∗
cReg -1.038 -2.410 cReg -1.059 -0.332∗∗
(-2.48) (-1.40) (-2.59) (-2.70)

Gas -3.964∗ -0.281 eReg 0.119 -0.0510

(-2.66) (-0.65) (0.15) (-0.21)

eReg -4.892 -0.0570 Educ 0.0224 0.00850

(-0.32) (-0.23) (0.25) (0.32)

Educ -0.00874 -0.0396 Gas -3.847∗ -0.264

(-0.07) (-0.83) (-2.69) (-0.61)

eReg x Educ 0.0571 cons 26.23∗∗ 5.144

(0.32) (2.84) (1.86)
N 49 50
cReg x Educ 0.0239
adj. R2 0.347 0.184
(1.21)
t statistics in parentheses
∗ ∗∗ ∗∗∗
cons 29.23∗ 9.400∗ p < 0.05, p < 0.01, p < 0.001

(2.23) (2.11)
N 49 50
adj. R2 0.334 0.192
t statistics in parentheses
∗ ∗∗ ∗∗∗
p < 0.05, p < 0.01, p < 0.001
TABLES AND FIGURES 19

Table 5: Alternative regression results with continuous (non-dummy) eReg variable:

(1) (2)
Ccons Econs
cReg -1.245 -0.638
(-1.70) (-0.39)

Gas -4.634 0.0744

(-1.85) (0.17)

eReg nd 3.793 -0.175

(0.34) (-1.24)

Educ 0.0747 0.0279

(0.33) (0.52)

eReg nd x Educ -0.0476

(-0.37)

cReg x Educ 0.00128

(0.07)

cons 24.56 3.086

(1.17) (0.64)
N 25 26
2
adj. R 0.285 0.607
t statistics in parentheses
* p < 0.05, ** p < 0.01, *** p < 0.001
TABLES AND FIGURES 20

Figure 1: From the core model, the variable cReg plotted against its residuals
TABLES AND FIGURES 21

Figure 2: From the core model, the variable Gas plotted against its residuals
TABLES AND FIGURES 22

Figure 3: From the core model, the variable Educ plotted against its residuals
TABLES AND FIGURES 23

Figure 4: From the alternative continuous model, the variable eReg nd plotted against its
residuals
TABLES AND FIGURES 24

Figure 5: From the alternative continuous model, the variable Gas plotted against its
residuals
TABLES AND FIGURES 25

Figure 6: From the alternative continuous model, the variable Educ plotted against its
residuals
 DATA STATEMENT 26

9 Data Statement

This research project’s data came from a variety of public health entities, government sources
and academic papers. Cigarette consumption data came from the CDC’s Behavior Risk
Factor Surveillance System, while e-cigarette usage was provided by the American Lung
Association’s analysis of CDC data. State cigarette tax data were found from Bloomberg
Tax, and standardized e-cigarette tax data were provided by Professor Michael F. Pesko
and are a subset of the data used in his paper (co-authors C. Cotti, E. Nesson, S. Phillips,
N. Tefft) ”Standardising the Measurement of E-Cigarette Taxes in the United States, 2010-
2020,” Tobacco Control, January 2021. State average gas prices for 2019 were collected
from the Office of Energy Efficiency and Renewable Energy’s Vehicle Technologies Office,
and state average high school graduation rates for 2019 were collected from U.S. News and
World Report.

The file contains 1,003 observations on the variables described below.

Number Variable Name Description

1 Ccons indexed value of state average population cigarette usage
2 Econs share of state population e-cigarette users
3 cReg average state tax amount per cigarette pack
4 eReg indicator equal to one if state has e-cigarette tax and zero, otherwise.
5 Gas state average retail gas price per gallon
6 Educ state average high school graduation rate
7 eReg nd standardized state average tax rate per fluid mL.

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