On 10 Aug, 2007, at 12:14 PM, Jim Devine wrote:
from SLATE: >USA Today leads with an analysis that shows states that
increased cigarette taxes have seen sharp declines in smoking. Now
that Congress is considering raising the federal cigarette tax to as
much as $1 per pack, some predict it will lead to a huge drop in the
number of smokers.<
is it possible that the tax increase could actually reduce tax
revenues by driving people to smoke other substances instead (or to
give up altogether or to smuggle)? (Laffer's story doesn't work with
the income tax, but it can work with excise taxes.)
But in this case (assuming drop in smoking, not switch to
alternative), Laffer's prescription does not apply since both effects
are desirable: an increase in tax revenue or an increase in public
health (which in turn decreases public spending).
--ravi
