I recently attended a lecture given by Arnold Kling, who is a former Federal Reserve economist on the Board of Governors staff, former senior economist at Freddie Mac, and all-around financial and monetary expert. The...
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- Higher Cigarette Taxes and Convenience Store Success
Higher Cigarette Taxes and Convenience Store Success
A study released last year by Dr. Jidong Guang and Dr. Frank Chaloupka of impacTeen attempts to see what impact higher cigarette taxes have on convenience stores. The conventional logic is that higher cigarette taxes mean lower economic success for convenience stores, and they wanted to test that hypothesis.
That is easier said than done, apparently, as their paper states that they couldn't find good data on convenience store profits. So instead, they decided to see what impact higher cigarette taxes have on "number of convenience stores per 1 million people." They seem to gloss over the obvious fact that the number of stores per one million people is not a logical proxy for the stores' financial success. Big stores count as much as little stores; hugely successful stores count as much as marginally successful ones. So the result is bizarre: they conclude that "an increase in the tax rate of $1 per pack will be associated with an increase in the number of convenience stores per 1 million people by 11."
They wisely hide this in their conclusion, merely asserting that their data show that "higher cigarette taxes...have had no negative economic impact on convenience stores." That's smart on their part, as even the most vehement anti-smoking advocate would be hard-pressed to claim that higher cigarette taxes have a hugely positive impact on convenience store profits. But the study leaves the close reader hanging as to why this might be the case. They suggest that this could happen because retail profits rise as stores shift away from higher-taxed cigarette sales to lower-taxed consumer goods. This assumes, however, that the number of stores rising is equivalent to rising profits, which may not be the case. It also is another way of saying that stores' profits are in fact hurt by higher cigarette taxes, but that convenience stores find new ways to make up the revenue loss. The chart included on page 30 of their study (reproduced below), showing the number of convenience stores per capita oscillating wildly over the study period, suggests that the relationship is not as clean as they suggest.
Ultimately, this study simply shows that their metric (convenience stores per capita) is not well-connected to convenience store economic success. If higher cigarette taxes reduces the number of legally-purchased cigarettes, that definitely impacts convenience store revenue.
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