Introduction

The taxation of tobacco products is universal in the modern state.¹ Wherever tobacco products are consumed, they are taxed. Further, while taxation policy varies widely from state to state, the taxation of tobacco products is almost always an important element of government policy toward tobacco and toward smoking. Tobacco taxation policy varies over time as well as cross-sectionally. For example, recent years have witnessed relatively sharp increases in tobacco tax policy in Canada and major efforts to create harmonisation of cigarette taxation policy in the European Community by substantial increases in tax for low income tax nations.^2,3 Since the autumn of 1993, a substantial increase in the per package cigarette tax has been proposed by the Clinton administration as a major funding vehicle for comprehensive health care reform in the United States. Cigarette tax policy also serves as a window into social attitudes about smoking because cigarette taxation policies not infrequently reflect shifts in views about cigarettes and smokers.⁴

The aim of this paper is to provide a policy context for reviewing what is currently known about the effect of cigarette taxes on smoking and what needs to be determined to provide an adequate factual basis for informed policy. In the first part of the analysis we discuss three different purposes of cigarette taxation and the relationship between each of these and the level of taxation that would be regarded as optimally appropriate. In this section we also probe the relationship between various purposes of taxation and theories of justice.

In the second part of the paper we discuss current knowledge about the behavioural effects of cigarette taxation. In this section we examine the impact of tax levels on the prevalence and incidence of smoking, as well as the impact of taxation and price changes …