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Cigarettes and Alcohol: Substitutes or Complements?

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  • Sandra L. Decker
  • Amy Ellen Schwartz

Abstract

Taxation of cigarettes and alcohol can raise revenue and reduce consumption of goods with negative external effects. Despite medical and psychological evidence linking their consumption, little previous work has investigated the significance of cross-price effects in cigarette and alcohol consumption. We use individual-level data from the Behavioral Risk Factor Surveillance System to investigate cigarette and alcohol consumption in the US, estimating both own and cross-price elasticities. Results suggest significant cross-price effects. Specifically, we find that higher alcohol prices decrease both alcohol consumption and smoking participation (suggesting a complementarity in consumption), while higher cigarette prices tend to decrease smoking participation but increase drinking. The significance of these findings suggests that further work is warranted to better understand the social and economic relationship between cigarette and alcohol consumption.

Suggested Citation

  • Sandra L. Decker & Amy Ellen Schwartz, 2000. "Cigarettes and Alcohol: Substitutes or Complements?," NBER Working Papers 7535, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:7535
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    References listed on IDEAS

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    1. Grossman, Michael & Chaloupka, Frank J & Sirtalan, Ismail, 1998. "An Empirical Analysis of Alcohol Addiction: Results from the Monitoring the Future Panels," Economic Inquiry, Western Economic Association International, vol. 36(1), pages 39-48, January.
    2. Lewit, Eugene M. & Coate, Douglas, 1982. "The potential for using excise taxes to reduce smoking," Journal of Health Economics, Elsevier, vol. 1(2), pages 121-145, August.
    3. Martin Browning, 1987. "Eating, Drinking, Smoking, and Testing the Lifecycle Hypothesis," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 329-345.
    4. Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
    5. repec:aph:ajpbhl:1990:80:3:309-312_9 is not listed on IDEAS
    6. Frank J. Chaloupka & Henry Saffer, 1992. "Clean Indoor Air Laws And The Demand For Cigarettes," Contemporary Economic Policy, Western Economic Association International, vol. 10(2), pages 72-83, April.
    7. Jones, Andrew M, 1989. "A Systems Approach to the Demand for Alcohol and Tobacco," Bulletin of Economic Research, Wiley Blackwell, vol. 41(2), pages 85-105, April.
    8. 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.
    9. Kenkel, Donald S, 1993. "Drinking, Driving, and Deterrence: The Effectiveness and Social Costs of Alternative Policies," Journal of Law and Economics, University of Chicago Press, vol. 36(2), pages 877-913, October.
    10. Wasserman, Jeffrey & Manning, Willard G. & Newhouse, Joseph P. & Winkler, John D., 1991. "The effects of excise taxes and regulations on cigarette smoking," Journal of Health Economics, Elsevier, vol. 10(1), pages 43-64, May.
    11. Cordes, Joseph J. & Nicholson, Eric & Sammartino, Frank, 1990. "Raising Revenue by Taxing Activities with Social Costs," National Tax Journal, National Tax Association, vol. 43(3), pages 343-56, September.
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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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