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Taxes, Cigarette Consumption and Smoking Intensity

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Author Info
Jérôme Adda () (University College London and Institute for Fiscal Studies)
Francesca Cornaglia () (University College London, Institute for Fiscal Studies and IZA Bonn)

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Abstract

This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentration - a metabolite of nicotine - measured in a large population of smokers over time, we show that smokers compensate tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette is detrimental to health, our results question the usefulness of tax increases. Second, we develop a model of rational addiction where agents can also adjust their intensity of smoking and we show that the previous empirical results suffer from severe estimation biases.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1849.

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Length: 38 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1849

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Related research
Keywords: taxes; smoking; cigarettes; addiction;

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Find related papers by JEL classification:
I1 - Health, Education, and Welfare - - Health

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Harris, Jeffrey E, 1980. "Taxing Tar and Nicotine," American Economic Review, American Economic Association, vol. 70(3), pages 300-311, June. [Downloadable!] (restricted)
  2. Jerome Adda & Francesca Cornaglia, 2005. "The effects of taxes and bans on passive smoking," CeMMAP working papers CWP20/05, Centre for Microdata Methods and Practice, Institute for Fiscal Studies. [Downloadable!]
    Other versions:
  3. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-42, August. [Downloadable!] (restricted)
    Other versions:
  4. William N. Evans & Matthew C. Farrelly, 1998. "The Compensating Behavior of Smokers: Taxes, Tar, and Nicotine," RAND Journal of Economics, The RAND Corporation, vol. 29(3), pages 578-595, Autumn. [Downloadable!] (restricted)
  5. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  6. Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory And Evidence," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1261-1303, November. [Downloadable!] (restricted)
  7. Philip DeCicca & Donald Kenkel & Alan Mathios, 2002. "Putting Out the Fires: Will Higher Taxes Reduce the Onset of Youth Smoking?," Journal of Political Economy, University of Chicago Press, vol. 110(1), pages 144-169, February. [Downloadable!] (restricted)
  8. Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1994. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier. [Downloadable!] (restricted)
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  10. M.C. Farrelly & C.T. Nimsch & A. Hyland & M. Cummings, 2004. "The effects of higher cigarette prices on tar and nicotine consumption in a cohort of adult smokers," Health Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 49-58. [Downloadable!]
  11. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Chung-Ping Loh & Chin-Shyan Chen & Tsai-Ching Liu, 2009. "Multiple Dimensions of Cigarette Smoking and Responsiveness to Cigarette Price Changes in Taiwan," Journal of Family and Economic Issues, Springer, vol. 30(2), pages 203-213, June. [Downloadable!] (restricted)
  2. Timothy K.M. Beatty, Erling Røed Larsen and Dag Einar Sommervoll, 2007. "Driven to Drink. Sin Taxes Near a Border," Discussion Papers 507, Research Department of Statistics Norway. [Downloadable!]
  3. Labonne, Julien & Chase, Robert S., 2008. "So you want to quit smoking : have you tried a mobile phone ?," Policy Research Working Paper Series 4657, The World Bank. [Downloadable!]
  4. Jérôme Adda & Francesca Cornaglia, 2006. "The Effect of Taxes and Bans on Passive Smoking," CEPR Discussion Papers 509, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  5. Emma Tominey, 2007. "Maternal Smoking During Pregnancy and Early Child Outcomes," CEP Discussion Papers dp0828, Centre for Economic Performance, LSE. [Downloadable!]
  6. Ian Irvine, 2008. "Smoking Intensity, Compensatory Behavior and Tobacco Tax Policy," Working Papers 200818, Geary Institute, University College Dublin. [Downloadable!]
  7. Kaplanoglou, G. & Newbery , D.M., 2008. "Horizontal Inequity and Vertical Redistribution with Indirect Taxes: the Greek Case," Cambridge Working Papers in Economics 0806, Faculty of Economics, University of Cambridge. [Downloadable!]
    Other versions:
  8. Jérôme Adda, 2007. "Behavior towards health risks: An empirical study using the “Mad Cow” crisis as an experiment," Journal of Risk and Uncertainty, Springer, vol. 35(3), pages 285-305, December. [Downloadable!] (restricted)
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This page was last updated on 2009-11-23.

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