Cigarette smoking remains the greatest cause of preventable mortality in the United States, and cigarette excise taxes are commonly used to deter tobacco use. Despite much existing research on the effects of cigarette taxes on smoking prevalence, very little is known about how smokers reallocate their household budgets when cigarette taxes increase. Estimates show that cigarette taxes disproportionately affect low-income consumers because people with less wealth tend to smoke more, particularly in rural areas. Indeed, research suggests that many smokers continue to smoke after cigarette taxes increase. Additionally, smokers may accommodate tax increases by reducing other spending, and the long-term implications of this trend are not fully understood.

We used two complementary approaches in our research on the effects of cigarette taxes on household budgets. First, we conducted a survey of 2,005 cigarette smokers about their expectations regarding their future spending in several categories. Specifically, we asked respondents about their intentions to keep smoking; their shopping behavior with respect to cigarettes; their use of alternative nicotine delivery products, including electronic cigarettes (e‑cigarettes); and their spending on more discretionary categories, such as entertainment, and less discretionary categories, such as housing and medical care. For a random group of respondents, we asked these questions in the context of a hypothetical cigarette tax increase that would double their current spending on cigarettes. The respondents who were presented with the hypothetical tax increase were similar to the other respondents in their demographics, socioeconomic status, and tobacco use.

Our survey experiment produced four main findings. First, the intention to quit cigarettes over the next year was 4.2 percentage points (21.9 percent) higher for the average respondent presented with the hypothetical cigarette tax increase.

Second, smokers presented with the tax increase were significantly more likely than other smokers to compensate through their tobacco shopping behaviors—specifically, they were 17.5 percent more likely to buy cigarettes in bulk, 63.2 percent more likely to buy cheaper cigarettes, 133.4 percent more likely to buy cigarettes in states with lower taxes, and 19 percent more likely to buy e‑cigarettes.

Third, the tax was associated with a broad reallocation of expected spending in both discretionary and nondiscretionary categories. For example, smokers presented with the tax increase were 30.8 percent more likely than other smokers to indicate that they would spend less on expenses related to health care.

Fourth, the effect of the hypothetical cigarette tax increase on other spending behaviors depended on respondents’ previous behavior. For example, for those who smoked heavily, the tax increase caused a significant increase in the expectation of spending more on cigarettes and e‑cigarettes and a larger reduction in expected spending on entertainment, groceries, clothing, and transportation.

The tax increase caused all respondents to expect large reductions in spending on clothing, health care, and housing. These findings suggest that adjustments to household budgets after cigarette tax increases may span discretionary and nondiscretionary spending categories. Additionally, our findings provide clear evidence of greater spending reallocations among smokers of lower socioeconomic status.

Our research leverages a second approach by analyzing detailed, nationally representative spending data from the Consumer Expenditure Survey. We studied variations in spending that occurred around the same time as changes in cigarette taxes in each state from 1996 through 2022. Our analysis estimates that a $1 tax hike decreased the share of households buying cigarettes by roughly 1 percentage point (5.5 percent). Despite this attrition, average household cigarette spending rose by about $7.76 over the following three months, an 11 percent increase driven by smokers who continued purchasing cigarettes. For these smokers, cigarette spending rose by $33 (8.7 percent), and gas station purchases fell by $10.95 (1.5 percent) over the same period. Within this group, those below the median income reduced their combined spending on shelter, clothing, education, and health care by $47.93 (2.1 percent).

Note
This research brief is based on Michael E. Darden et al., “Cigarette Taxes and the Household Budget,” National Bureau of Economic Research Working Paper no. 33746, May 2025.