Unintended consequences of cigarette prohibition, regulation, and taxation

Laws that prohibit, regulate, or tax cigarettes can generate illicit markets for tobacco products. Illicit markets both reduce the efficacy of policies intended to improve public health and create harms of their own. Enforcement can reduce evasion but creates additional harms, including incarceration and violence. There is strong evidence that more enforcement in illicit drug markets can spur violence. The presence of licit substitutes, such as electronic cigarettes, has the potential to greatly reduce the size of illicit markets. We present a model demonstrating why enforcement can increase revenues in the illicit market, show that states with higher tobacco taxes have larger illicit markets, and apply the findings to discussion of public policy toward a potential ban on menthol cigarettes. The social calculus involved in determining public policy toward tobacco cigarettes should include the harms from both consumption and control. We conclude by highlighting areas where more research is needed for effective policymaking. •Laws that prohibit, regulate, or tax cigarettes can generate illicit markets.•Illicit trade in tobacco is significant worldwide and in the United States.•Law enforcement against black markets can create additional harms such as violence.•Most empirical studies associate increased enforcement with more violent crime.•Tobacco control policy should account for the indirect social costs of regulation.