Essays on State Cigarette Excise Taxes: Implications for Revenue and Tax Evasion Assignment

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The paper "State Cigarette Excise Taxes:   Implications for Revenue and Tax Evasion" is a wonderful example of an assignment on macro and microeconomics.   According to the law of demand, the demand curve flows downwards. There are two types of changes that can occur on a demand curve: movement along the demand curve and shift of the demand curve. Changes in the prices of a commodity can result to a movement along the demand curve while a shift in the demand curve is caused by other factors other the price of that commodity. It could be as a result of changes in the income level, expectations of a price change, change in taste and preference or changes in prices of other goods.

The sales of impulse goods and services have dropped as a result of changes in the prices of the cigarettes and can therefore be explained using the theory of shift in the demand curve. When the tax of cigarettes was increased, the prices of cigarettes went up. This in turn had a direct impact on the consumption of impulse goods such as chocolates, magazines, soft drinks and newspapers since consumers had to cut back on consumption of this impulse items so that they could still leave enough money to buy the same amount of cigarettes they were purchasing.

This means that as the prices of the cigarettes continue to rise, the demand for the impulse product will shift to the left from Do to D1 as shown in the diagram below. Source: Kim (2010) Q2. Do you believe that smokers will bear the whole tobacco tax burden? Using diagram(s) illustrate and explain Economics states that when the price of a good or service goes up, then eventually, the demanded quantity of that commodity will go down.

However, in the recent past, researchers have suggested that due to the addictive nature of tobacco, this rule is exceptional to cigarettes. They argue that smokers will pay any amount of money so as to continue enjoying smoking the same number of cigarettes they used to so as to satisfy their wants and needs. It is worth noting that through increasing the tobacco tax, it will only act as a great incentive to the smokers to try and get cheaper cigarettes through patronizing shops offering lower prices, purchase cigarettes from the states which are neighbouring them and have lower tobacco tax, switching to other cheaper cigarette brands and buying tax free cigarettes over the internet.

Smokers will be forced to avoid tax which will involve them preferring to legally buy these cigarettes from duty free shops.  

References

Farrelly M.C, Nimsch C.T & James J (2010) State Cigarette Excise Taxes:

Implications for Revenue and Tax Evasion Retrieved on 30th April 2011 from https://mail.google.com/mail/?ui=2&ik=288658763c&view=att&th=12f9559ed4bf5ad8&attid=0.3&disp=attd&realattid=file2&zw

Kim S (2010) Explorations in Economic Demand, Part III Shifts in the Demand Curve Retrieved on 30th April 2011 from http://ecedweb.unomaha.edu/Dem_Sup/shifts.htm

Mackay J (2009) chapter 4: measures to reduce the demand for tobacco Retrieved on 30th April 2011 from http://www.globalink.org/tobacco/wb/wb04.shtml

WH O (2010) Technical Manual on Tobacco Tax Administration: Chapter IV The political economy of tobacco taxation Retrieved on 30th April 2011 from https://mail.google.com/mail/?ui=2&ik=288658763c&view=att&th=12f9559ed4bf5ad8&attid=0.2&disp=attd&realattid=file0&zw

Yurekli A & Joy B (2010) Design and Administer Tobacco Taxes Retrieved on 30th April 2011 from https://mail.google.com/mail/?ui=2&ik=288658763c&view=att&th=12f9559ed4bf5ad8&attid=0.6&disp=attd&realattid=file6&zw

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