There are many reasons why a government would like to tax differentially commodities known as "bads." One is to discourage its consumption; these are goods that generate negative externalities, addiction and health problems. Another reason is that since these consumption goods have a relatively inelastic demand, taxing them heavily will bring a big deal of revenue for the government. Finally, there is a moral element in having the consumer of these so called sinful goods to face higher prices through taxes.

Cigarette and other tobacco products are categorized in this group, traditionally in the United States the cigarette tax has been applied as an excise tax. The interesting design feature of this tax is that it is a single stage tax and it is already included in the product's price at the time of purchase, making it almost invisible and in theory less politically sensitive.

This paper answers two sets of questions that are equally relevant for the study of excise taxation, and in particular, of cigarette taxation. The first set is: What is the influence of the tax in consumer behavior? How do consumers respond to any increase in taxes, while controlling for all other variables such as smoking restrictions, publicity and factors like income, race, and other demographic characteristics? And the second is: what is the influence of political decisions and other types of political and social variables in the determination of cigarette taxes?

These questions are answered by using a two equation model, and a data set for the USA fifty states and D.C, from 1970 to 2010. The impact of different social, economic and political variables is studied, and the results are discussed under the optic of an integrated analysis of public finance and political economics.