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The effect of cigarette prices on insurance premiums: Evidence from cigarette tax increase in South Korea

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  • Lee, Youngju
  • Park, Minsung

Abstract

This study examines how South Korea’s 80% cigarette price increase in 2015 affected private health insurance premiums, addressing a critical gap in understanding insurance market spillovers from tobacco taxation. Using panel data from the Korea Health Panel Survey (2010–2018), we employ a control function approach with generalized residuals to address endogeneity in smoking behavior. The policy reduced monthly insurance premiums by 4.7% among smokers, alongside substantial declines in smoking participation by 3.9 percentage points and daily consumption by 1.5 cigarettes per day, or approximately half a pack per week. Our findings demonstrate that tobacco taxation influences private risk markets through behavioral channels, offering important policy insights for aging economies seeking to contain healthcare costs while improving population health.

Suggested Citation

  • Lee, Youngju & Park, Minsung, 2026. "The effect of cigarette prices on insurance premiums: Evidence from cigarette tax increase in South Korea," Economic Analysis and Policy, Elsevier, vol. 89(C), pages 1064-1076.
    • Handle: RePEc:eee:ecanpo:v:89:y:2026:i:c:p:1064-1076
    DOI: 10.1016/j.eap.2025.12.031
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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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