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Do young adults substitute cigarettes for alcohol? Learning from the master settlement agreement

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  • Vinish Shrestha

    (Towson University)

Abstract

Although real alcohol prices have plummeted over the last two decades, cigarette prices have increased substantially, especially after the Master Settlement Agreement (MSA) in 1998. I study the effect of increases in cigarette prices following the MSA on alcohol consumption among 18- to 24-year olds to determine the economic relationship between cigarettes and alcohol among young adults. I perform analyses at both the conditional mean and quantiles and find that increases in cigarette prices reduce drinking participation among young adults at the extensive margin. However, conditional upon one’s decision to drink, higher cigarette prices increase alcohol consumption. Such a pattern of substitution is concentrated between the 40th and 50th conditional quantiles. The results suggest that caution should be exercised when considering cigarettes and alcohol as complements.

Suggested Citation

  • Vinish Shrestha, 2018. "Do young adults substitute cigarettes for alcohol? Learning from the master settlement agreement," Review of Economics of the Household, Springer, vol. 16(2), pages 297-321, June.
    • Handle: RePEc:kap:reveho:v:16:y:2018:i:2:d:10.1007_s11150-016-9337-x
    DOI: 10.1007/s11150-016-9337-x
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