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The Compensating Behavior of Smokers: Taxes, Tar, and Nicotine

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  • William N. Evans
  • Matthew C. Farrelly

Abstract

Using data from the 1979 and 1987 National Health Interview Survey (NHIS), we test whether smokers alter their smoking habits in the face of higher taxes. Smokers in high-tax states are more likely to smoke cigarettes higher in tar and nicotine. Although taxes reduce the number of cigarettes consumed per day among remaining smokers, total daily tar and nicotine intake is unaffected. Young smokers, aged 18-24, are much more responsive to changes in taxes than are older smokers, and their total daily tar and nicotine intake actually increases after a tax hike. We illustrate that tax-induced compensating behavior may eliminate some health benefits generated by reduced smoking participation. A more appropriate tax might be based on the tar and nicotine content of cigarettes.

Suggested Citation

  • 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.
  • Handle: RePEc:rje:randje:v:29:y:1998:i:autumn:p:578-595
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    Cited by:

    1. Laffer, Arthur B., 2016. "Handbook of Tobacco Taxation: Theory and Practice (Economic Theory of Taxation)," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 50-67, October.
    2. Rhoads Christopher H., 2012. "Problems with Tests of the Missingness Mechanism in Quantitative Policy Studies," Statistics, Politics and Policy, De Gruyter, vol. 3(1), pages 1-25, March.
    3. Irvine Ian J & Nguyen Hai V, 2011. "Toxic Choices: The Theory and Impact of Smoking Bans," Forum for Health Economics & Policy, De Gruyter, vol. 14(2), pages 1-36, July.
    4. Kerry Anne McGeary & Dhaval M. Dave & Brandy J. Lipton & Timothy Roeper, 2017. "Impact of Comprehensive Smoking Bans on the Health of Infants and Children," NBER Working Papers 23995, National Bureau of Economic Research, Inc.
    5. Ciliberto Federico & Kuminoff Nicolai V, 2010. "Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-46, July.
    6. repec:hal:journl:halshs-01224553 is not listed on IDEAS
    7. Kevin Callison & Robert Kaestner, 2014. "Do Higher Tobacco Taxes Reduce Adult Smoking? New Evidence Of The Effect Of Recent Cigarette Tax Increases On Adult Smoking," Economic Inquiry, Western Economic Association International, vol. 52(1), pages 155-172, January.
    8. Salti, Nisreen & Brouwer, Elizabeth & Verguet, St├ęphane, 2016. "The health, financial and distributional consequences of increases in the tobacco excise tax among smokers in Lebanon," Social Science & Medicine, Elsevier, vol. 170(C), pages 161-169.
    9. 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.
    10. Lisa Farrell & Tim R.L. Fry, 2013. "Is Illicit Tobacco Demand Sensitive to Relative Price?," Economic Papers, The Economic Society of Australia, vol. 32(1), pages 1-9, March.

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