Goldin & Homonoff - DataSpace at Princeton University

to cigarette register taxes declines by income. Hence, policymakers may be able to ease the financial
burden of cigarette taxes on the poor by levying such taxes at the register instead of including them in
cigarettes’ posted price.
Two qualifications are important when interpreting this result. First, we have treated cigarettes as
a standard consumption good, abstracting away from their addictive nature. However, the fact that
cigarettes are addictive could alter the welfare implications of our results. For example, models along the
lines suggested by Jonathan Gruber and Botond Koszegi (2004) or Jonathan Gruber and Sendhil Mul-
lainathan (2002) suggest that cigarette taxes can benefit consumer welfare when voters adopt such taxes
as a method of exercising self-control; consequently, shifting a cigarette tax to the register could deprive
some consumers of a valuable tool for self-discipline. At the other extreme, a rational-addiction model
such as that presented in Gary S. Becker, Michael Grossman, and Kevin M. Murphy (1994) would imply
that cigarette consumption decisions are informed by consumers’ expectations concerning future prices;
if such expectations are important, the demand equations employed here are misspecified.
Second, readers should be cautious about extrapolating our results to goods other than cigarettes.
Although we believe that there are strong theoretical and empirical reasons to think that attentiveness to
cigarette register taxes declines by income, the cognitive cost model presented in Appendix C highlights
the fact that this result can vary between goods. In particular, low-income consumers may well be less
attentive to register taxes on goods that are relatively sensitive to income and that constitute a larger share
of expenditures for high-income consumers. Moreover, Appendix B shows that shifting to a register tax
has the potential to make consumers worse off by inducing producers to raise a good’s pre-tax price. For
goods whose markets are characterized by elastic demand and inelastic supply, shifting to a register tax
could actually worsen the burden of those taxes on the poor.
Although our discussion has focused on taxes designed to raise revenue, the empirical findings pre-
sented here also speak to broader questions of tax design. For example, a number of public health
advocates have suggested raising taxes on soft drinks as a way to combat population obesity, with some
proponents calling for an expanded tax of any form on those products (Carolyn L. Engelhard, Arthur
Garson Jr., and Stan Dorn (2009)) and others arguing that including the tax in the posted product price
would be most effective (Kelly D. Brownell et al. (2009)). Our results suggest an important consideration
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