What is the effect of a 10¢ increase in the federal tax

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Besley and Rosen (1998) find that a 10¢ increase in the federal tax on a pack of cigarettes leads to an average 2.8¢ increase in state cigarette taxes. What implications does their result have for calculating the effects of an increase in the federal cigarette tax on the quantity demanded? Given the 2010 federal tax of $1.01 per pack of cigarettes and an elasticity of demand for the U.S. population of what is the effect of a 10¢ increase in the federal tax? How would your answer change if the state tax does not change?

Reference no: EM131345979

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