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|
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|Publication status:||published in: American Economic Review, 2006, 96 (4), 1013-1028|
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- 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.
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"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.
- 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.
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Journal of Political Economy,
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- 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.
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"The Economics of Smoking,"
NBER Working Papers
7047, National Bureau of Economic Research, Inc.
- 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.
- Jonathan Gruber & Botond Koszegi, 2000. "Is Addiction "Rational"? Theory and Evidence," NBER Working Papers 7507, National Bureau of Economic Research, Inc.
- 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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