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Rational Addiction, Tax Revenues and Tobacco Control

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  • Junmin Wan

    (Institute of Social and Economic Research, Osaka University)

Abstract

The hypotheses of non-addiction, myopia and rational addiction are tested using annual, quarterly and monthly data. Changes in the prices of Japanese cigarettes can be viewed as natural experiments from the point of view of consumer behavior, because the Japanese government controls cigarette prices. The empirical results of this paper support the addiction hypothesis. The short-run and long-run price elasticities range from - 0.338to -0.421, and from -0.679 to -0.686, respectively; thus, increases in tax revenues in the long-run are likely to be smaller than those in the short-run. As a result, tax increases would be an effective means of curbing smoking and reducing its social cost. Furthermore, the debt compensation programs for the Japan Railway and the National Forestry will not go according to plan, unless revenues are increased in the future.

Suggested Citation

  • Junmin Wan, 2004. "Rational Addiction, Tax Revenues and Tobacco Control," Discussion Papers in Economics and Business 04-11, Osaka University, Graduate School of Economics.
    • Handle: RePEc:osk:wpaper:04-11
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