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Revisiting an important Canadian natural experiment with new methods: an evaluation of the impact of the 1994 tax decrease on smoking

  • François Gardes

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Philip Merrigan

    ()

    (Centre Interuniversitaire sur le Risque, les Politiques Economiques et l'Emploi - CIRPEE - Université du Québec à Montréal)

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    The panel structure of the Survey on Smoking in Canada (1994-95) and novel methods are used to estimate the impact of an important decrease in the levels of taxation of cigarettes occurring in five out of the ten Canadian provinces that intended to eradicate black market sales of cigarettes in the spring of 1994. Given that black market sales have recently increased substantially because of new taxes, a complete and thorough analysis of the 1994 policy is of particular importance for policy makers. We revisit the issue with new econometric methods to address this evaluation problem as well as focus on particular sub-groups in the Canadian population. The large sample permits precise estimation of the impact of the policy by sub-group showing that females, young males, the poorly educated and separated or divorced individuals were particularly sensitive to these dramatic changes in cigarette prices. We also compute under realistic assumptions a price-elasticity for the probability of smoking and a lower bound on the price-elasticity for the quantities of cigarettes smoked.

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    Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00974961.

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    Date of creation: Mar 2014
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    Handle: RePEc:hal:cesptp:halshs-00974961
    Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00974961
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    1. Susan Athey & Guido Imbens, 2003. "Identification and Inference in Nonlinear Difference-in-Differences Models," Levine's Working Paper Archive 506439000000000079, David K. Levine.
    2. Blundell, Richard & Costa Dias, Monica, 2008. "Alternative Approaches to Evaluation in Empirical Microeconomics," IZA Discussion Papers 3800, Institute for the Study of Labor (IZA).
    3. Becker, Gary S & Grossman, Michael & Murphy, Kevin M, 1994. "An Empirical Analysis of Cigarette Addiction," American Economic Review, American Economic Association, vol. 84(3), pages 396-418, June.
    4. Philip J. Cook & George Tauchen, 1982. "The Effect of Liquor Taxes on Heavy Drinking," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 379-390, Autumn.
    5. Chaloupka, Frank, 1991. "Rational Addictive Behavior and Cigarette Smoking," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 722-42, August.
    6. 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.
    7. Jonathan Gruber & Anindya Sen & Mark Stabile, 2002. "Estimating Price Elasticities When there is Smuggling: The Sensitivity of Smoking to Price in Canada," NBER Working Papers 8962, National Bureau of Economic Research, Inc.
    8. Craig A. Gallet & John A. List, 2003. "Cigarette demand: a meta-analysis of elasticities," Health Economics, John Wiley & Sons, Ltd., vol. 12(10), pages 821-835.
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