Taxes, Cigarette Consumption, and Smoking Intensity
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)
Volume (Year): 96 (2006)
Issue (Month): 4 (September)
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- Jérôme Adda & Francesca Cornaglia, 2006.
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CEPR Discussion Papers
509, Centre for Economic Policy Research, Research School of Economics, Australian National University.
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University of Chicago - George G. Stigler Center for Study of Economy and State
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- 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.
- Frank J. Chaloupka & Kenneth E. Warner, 1999.
"The Economics of Smoking,"
NBER Working Papers
7047, National Bureau of Economic Research, Inc.
- 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.
- 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.
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