Taxing Consumption and the Take-up of Public Assistance: The Case of Cigarette Taxes and Food Stamps

Abstract

We exploit cigarette tax variation across US states from 2001 to 2012 to show how taxing inelastic consumption goods can induce low-income households to enroll in public assistance programs. Using a novel household panel of monthly food stamp enrollment from the Current Population Survey, we enrich standard cigarette tax difference-in-differences models with an additional control group: nonsmoking households. Smoking households are treated with higher taxes, while nonsmoking households are not. Marginal smoking households respond to increases in cigarette taxes by taking up food stamps at rates higher than smoking households in other states and nonsmoking households in the same state.