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Time Discounting and Smoking Behavior under Tax Hikes

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  • Myong-Il Kang
  • Shinsuke Ikeda

Abstract

By combining our broad panel survey of Japanese adults from 2005 to 2008 and actual cigarette tax data, we investigate how smoking behavior including responses to tax hikes depends on time discounting and its biases, such as hyperbolic discounting and the sign effect. Cigarette consumption displays significantly positive correlations with discount rates and the procrastinating tendency, and negative correlations with the sign effect. Hyperbolic, procrastinating, andna�ve respondents decrease their after-tax-hike cigarette consumption more than the others, implying that, irrespective of the preannouncement of a future tax hike, they postpone smoking moderation until the tax hike actually takes place. Finally, the government's revenue from cigarette tax peaks at a JPY 29.92 (around USD 0.28 using the conversion rate [107.16] in February 2008) higher tax per cigarette than the present actual level.

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Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0782.

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Date of creation: Jun 2010
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Handle: RePEc:dpr:wpaper:0782

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Cited by:
  1. Yamamura, Eiji, 2014. "Time preference and perceptions about government spending and tax: Smokers’ dependence on government support," MPRA Paper 55659, University Library of Munich, Germany.

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