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Is Smoking Inferior?: Evidence from Variation in the Earned Income Tax Credit

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  • Donald S. Kenkel
  • Maximilian D. Schmeiser
  • Carly Urban

Abstract

In this paper we estimate the causal income elasticity of smoking participation, cessation, and cigarette demand conditional upon participation. Using an instrumental variables (IV) estimation strategy, we find that smoking appears to be a normal good among low-income adults: Higher-instrumented income is associated with an increase in the number of cigarettes consumed and a decrease in smoking cessation. The magnitude and direction of the changes in the income coefficients from our OLS to IV estimates are consistent with the hypothesis that correlational estimates between income and smoking-related outcomes are biased by unobservable characteristics that differentiate higher-income smokers from lower-income smokers.

Suggested Citation

  • Donald S. Kenkel & Maximilian D. Schmeiser & Carly Urban, 2014. "Is Smoking Inferior?: Evidence from Variation in the Earned Income Tax Credit," Journal of Human Resources, University of Wisconsin Press, vol. 49(4), pages 1094-1120.
    • Handle: RePEc:uwp:jhriss:v:49:y:2014:i:4:p:1094-1120
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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health

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