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Revisiting an important Canadian natural experiment with new methods: an evaluation of the impact of the 1994 tax decrease on smoking

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  • François Gardes

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Philip Merrigan

    ()
    (Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi - CIRPEE - Université du Québec à Montréal)

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    Abstract

    The panel structure of the Survey on Smoking in Canada (1994-95) and novel methods are used to estimate the impact of an important decrease in the levels of taxation of cigarettes occurring in five out of the ten Canadian provinces that intended to eradicate black market sales of cigarettes in the spring of 1994. Given that black market sales have recently increased substantially because of new taxes, a complete and thorough analysis of the 1994 policy is of particular importance for policy makers. We revisit the issue with new econometric methods to address this evaluation problem as well as focus on particular sub-groups in the Canadian population. The large sample permits precise estimation of the impact of the policy by sub-group showing that females, young males, the poorly educated and separated or divorced individuals were particularly sensitive to these dramatic changes in cigarette prices. We also compute under realistic assumptions a price-elasticity for the probability of smoking and a lower bound on the price-elasticity for the quantities of cigarettes smoked.

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    Bibliographic Info

    Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00974961.

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    Date of creation: Mar 2014
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    Handle: RePEc:hal:cesptp:halshs-00974961

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    Related research

    Keywords: Cigarette; price-elasticity; difference in difference;

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    1. Gruber, Jonathan & Sen, Anindya & Stabile, Mark, 2003. "Estimating price elasticities when there is smuggling: the sensitivity of smoking to price in Canada," Journal of Health Economics, Elsevier, Elsevier, vol. 22(5), pages 821-842, September.
    2. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 722-42, August.
    3. Susan Athey & Guido W. Imbens, 2002. "Identification and Inference in Nonlinear Difference-In-Differences Models," NBER Technical Working Papers, National Bureau of Economic Research, Inc 0280, National Bureau of Economic Research, Inc.
    4. Richard Blundell & Monica Costa Dias, 2002. "Alternative approaches to evaluation in empirical microeconomics," CeMMAP working papers, Centre for Microdata Methods and Practice, Institute for Fiscal Studies CWP10/02, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    5. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
    6. Philip J. Cook & George Tauchen, 1982. "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 13(2), pages 379-390, Autumn.
    7. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(4), pages 675-700, August.
    8. Craig A. Gallet & John A. List, 2003. "Cigarette demand: a meta-analysis of elasticities," Health Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 12(10), pages 821-835.
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