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Taxes, Cigarette Consumption, and Smoking Intensity

  • Jérôme Adda
  • Francesca Cornaglia

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 for tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking a given cigarette more intensively 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 estimation biases. (JEL D12, H25, I12)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.96.4.1013
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File URL: http://www.aeaweb.org/aer/data/sept06/20040645_data.zip
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 96 (2006)
Issue (Month): 4 (September)
Pages: 1013-1028

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Handle: RePEc:aea:aecrev:v:96:y:2006:i:4:p:1013-1028
Note: DOI: 10.1257/aer.96.4.1013
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  1. 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.
  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.
  3. Harris, Jeffrey E, 1980. "Taxing Tar and Nicotine," American Economic Review, American Economic Association, vol. 70(3), pages 300-311, June.
  4. Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
  5. 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.
  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.
  7. 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.
  8. Frank J. Chaloupka, 1990. "Rational Addictive Behavior and Cigarette Smoking," NBER Working Papers 3268, National Bureau of Economic Research, Inc.
  9. 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.
  10. Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
  11. 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.
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