Buying cigarettes from Indian reservations: Magnitude of the discount

The Constitution and the federal government recognize Native American tribes have limited local sovereignty over their members and territory, as “domestic dependent nations”. Consequently, tribal members are not subject to state cigarette excise taxes. But in practice, on many reservations, the taxes are not applied to sales to non-tribal members who buy cigarettes on the reservation thereby reducing the public health benefits of cigarette price increases. 

Although previous research describes behaviors and characteristics of smokers associated with tax-free sales on reservations and related policy issues, few have evaluated price reduction related to sales on reservations. The limited evidence is usually based on experience of a single state and thus cannot be generalized to the US population. 

We conducted a nationwide study to examine potential discounts using data from the 2009-2010 National Adult Tobacco Survey that collected information on cigarette purchases on Indian reservations, the prices paid, and the use of other price minimization behaviors. In the analysis, we use the instrumental variables technique (IV) to calibrate our estimates from the impacts of reverse causality and confounding factors that may be correlated with both cigarette retail prices and purchases on Indian reservations. The IV approach has been widely used in economic studies and recently adopted by public health and health service research. In our model, we use the distance between the mean population center of a respondent’s county of residence and the closest reservation as an instrument for the probability of cigarette purchases on reservations. Our estimates suggest that a little more than 10% of U.S. current smokers have purchased cigarettes from reservations in the last 12 months and on average, purchases on reservation were associated with a price reduction of $0.67 per pack (12.7%). We also found some evidence of geographic variations in these estimates. It suggests that expanding state-level negotiations with Native American tribes to collect taxes from non-tribal member purchases can increase the public health impact from raising cigarette prices.