Goldin & Homonoff - DataSpace at Princeton University
Goldin & Homonoff - DataSpace at Princeton University
Goldin & Homonoff - DataSpace at Princeton University
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and is not st<strong>at</strong>istically significant. However, the coefficient on the sales tax is measured imprecisely,<br />
and consequently, we cannot reject the null hypothesis of equality between the two coefficients. On the<br />
extensive margin, however, the point estim<strong>at</strong>e of the sales tax is slightly gre<strong>at</strong>er in magnitude than th<strong>at</strong><br />
of the excise tax, although here too the difference is not st<strong>at</strong>istically significant. Overall, the evidence is<br />
inconclusive regarding the presence of a salience effect for the general popul<strong>at</strong>ion.<br />
C. Attentiveness to Cigarette Taxes by Income<br />
The inconclusive results for the general popul<strong>at</strong>ion in Section II.B might mask heterogeneous effects<br />
across income groups. We now turn to our primary question of interest, whether low-income consumers<br />
are particularly <strong>at</strong>tentive to cigarette register taxes. The baseline empirical model for this section is given<br />
by:<br />
yismt = α + β1τ e smt + β2τ s smt + ρ1τ e smtLIismt + ρ2τ s smtLIismt + ηLIismt +<br />
γxsmt + δzismt + µs + λt + πm + εismt<br />
where LI is a binary variable indic<strong>at</strong>ing whether the respondent is low-income, defined as having income<br />
below the 25th percentile. Compared to the econometric model in II.2, this specific<strong>at</strong>ion adds interaction<br />
terms between low-income st<strong>at</strong>us and the two tax r<strong>at</strong>e variables. 19 The coefficients on the two tax types,<br />
β1 and β2, describe how high-income consumers modify their demand in response to changes in the<br />
excise and sales taxes, respectively. In turn, the coefficients on the income-interaction terms, ρ1 and ρ2,<br />
measure whether low-income consumers are more or less sensitive to changes in the two tax types.<br />
Our primary question is whether <strong>at</strong>tentiveness to the sales tax varies by income. In answering this<br />
question, one must distinguish between <strong>at</strong>tentiveness – the extent to which consumers account for a<br />
tax when making their consumption decisions – and price-sensitivity – which describes how a tax th<strong>at</strong><br />
consumers account for affects their optimal purchase. The sales*low-income interaction term (ρ2) may<br />
reflect differences in <strong>at</strong>tentiveness between high- and low-income consumers, but it may also reflect<br />
19 In addition to the main effect for low-income st<strong>at</strong>us, the individual demographics vector z also includes a continuous<br />
measure of income.<br />
17<br />
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