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Cigarette Taxation and the Social Consequences of Smoking

In: Tax Policy and the Economy, Volume 9

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  • W. Kip Viscusi

Abstract

This paper assesses the appropriate cigarette tax needed to address potential market failures. There is no evidence of inadequate risk decisions by smokers regarding their own welfare. Detailed calculations of the financial externalities of smoking indicate that the financial savings from premature mortality in terms of lower nursing home costs and retirement pensions exceed the higher medical care and life insurance costs generated. The costs of environmental tobacco smoke are highly uncertain, but of potentially substantial magnitude. Even with recognition of these costs, current cigarette taxes exceed the magnitude of the estimated net externalities.

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This chapter was published in:

  • James M. Poterba, 1995. "Tax Policy and the Economy, Volume 9," NBER Books, National Bureau of Economic Research, Inc, number pote95-1, May.
    This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 10891.

    Handle: RePEc:nbr:nberch:10891

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    1. Poterba, James M, 1989. "Lifetime Incidence and the Distributional Burden of Excise Taxes," American Economic Review, American Economic Association, vol. 79(2), pages 325-30, May.
    2. Gary S. Becker & Kevin M. Murphy, 1986. "A Theory of Rational Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 41, Chicago - Center for Study of Economy and State.
    3. Wasserman, Jeffrey & Manning, Willard G. & Newhouse, Joseph P. & Winkler, John D., 1991. "The effects of excise taxes and regulations on cigarette smoking," Journal of Health Economics, Elsevier, vol. 10(1), pages 43-64, May.
    4. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," University of Chicago - George G. Stigler Center for Study of Economy and State 61, Chicago - Center for Study of Economy and State.
    5. Grossman, Michael, 1991. "The demand for cigarettes," Journal of Health Economics, Elsevier, vol. 10(1), pages 101-103, May.
    6. Harris, Jeffrey E, 1980. "Taxing Tar and Nicotine," American Economic Review, American Economic Association, vol. 70(3), pages 300-311, June.
    7. Viscusi, W Kip, 1990. "Do Smokers Underestimate Risks?," Journal of Political Economy, University of Chicago Press, vol. 98(6), pages 1253-69, December.
    8. Ippolito, Pauline M. & Ippolito, Richard A., 1984. "Measuring the value of life saving from consumer reactions to new information," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 53-81, November.
    9. John B. Shoven & Jeffrey O. Sundberg & John P. Bunker, 1987. "The Social Security Cost of Smoking," NBER Working Papers 2234, National Bureau of Economic Research, Inc.
    10. Joni Hersch & W. Kip Viscusi, 1990. "Cigarette Smoking, Seatbelt Use, and Differences in Wage-Risk Tradeoffs," Journal of Human Resources, University of Wisconsin Press, vol. 25(2), pages 202-227.
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