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Bulow: tobacco deal redistributes money between states

Rocky Mountain News columnist Peter Blake alerts us to a new paper by Stanford economist Jeremy Bulow which Blake says exposes a little-explored ramification of the 1998 multistate tobacco deal, namely that its distribution of loot works to the disfavor of states with fast-growing populations:

Colorado's share of the annual take is roughly 1.15 percent, even though we had 1.56 percent of the nation's population in 2004.

That 1.15 percent is fixed in perpetuity even though our share of the national population will soon approach 2 percent.

In other words, Colorado is and will continue to be a donor state, just as it is in federal highway funding.

The imbalance might not matter were payments into the fund (at the expense of smokers in practice, though ostensibly made by tobacco companies) also held proportionate to old population levels. But instead payments into the fund are tied to current cigarette sales, which suggests the deal has a widening redistributive effect permitting states with relatively shrinking populations to profit at the expense of those growing fast.

I haven't been able to find an online link to Bulow's new paper. For a sampling of his highly regarded earlier work on the tobacco deal, see here, here (speech while director of the Bureau of Economics at the Federal Trade Commission) and here (PDF)(calling deal "incredibly corrupt; had it been made in any other industry it would surely have been declared illegal"), and OL Jul. 29, 1999; see also OL Jun. 3, 2005.



Rafael Mangual
Project Manager,
Legal Policy

Manhattan Institute


Published by the Manhattan Institute

The Manhattan Insitute's Center for Legal Policy.