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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University of Chicago - George G. Stigler Center for Study of Economy and State
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