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 tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette 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 severe estimation biases.
|Date of creation:||Nov 2005|
|Publication status:||published in: American Economic Review, 2006, 96 (4), 1013-1028|
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References listed on IDEAS
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- Harris, Jeffrey E, 1980. "Taxing Tar and Nicotine," American Economic Review, American Economic Association, vol. 70(3), pages 300-311, June.
- 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.
- Chaloupka, Frank, 1991.
"Rational Addictive Behavior and Cigarette Smoking,"
Journal of Political Economy,
University of Chicago Press, vol. 99(4), pages 722-742, August.
- Frank J. Chaloupka, 1990. "Rational Addictive Behavior and Cigarette Smoking," NBER Working Papers 3268, National Bureau of Economic Research, Inc.
- Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics,in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627 Elsevier.
- Frank J. Chaloupka & Kenneth E. Warner, 1999. "The Economics of Smoking," NBER Working Papers 7047, National Bureau of Economic Research, Inc.
- 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.
- Jérôme Adda & Francesca Cornaglia, 2006. "The Effect of Taxes and Bans on Passive Smoking," CEPR Discussion Papers 509, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Adda, Jérôme & Cornaglia, Francesca, 2006. "The Effect of Taxes and Bans on Passive Smoking," IZA Discussion Papers 2191, Institute for the Study of Labor (IZA).
- Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
- 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.
- Gary S. Becker & Michael Grossman & Kevin M. Murphy, 1990. "An Empirical Analysis of Cigarette Addiction," NBER Working Papers 3322, National Bureau of Economic Research, Inc.
- 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.
- 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.
- 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.
- 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.
- 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.
- Jonathan Gruber & Botond Köszegi, 2001. "Is Addiction "Rational"? Theory and Evidence," The Quarterly Journal of Economics, Oxford University Press, vol. 116(4), pages 1261-1303. Full references (including those not matched with items on IDEAS)
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