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Smoking Intensity, Compensatory Behavior and Tobacco Tax Policy

Author

Listed:
  • Ian Irvine

    (Concordia University, Montreal, Canada)

Abstract

Smokers not only choose the number of cigarettes to smoke in any given period on the basis of price, they also choose the intensity with which to smoke - that is, how much nicotine to inhale. The possibility that quantity-reducing tax policies may be mitigated, or even completely offset, by higher intensity has been raised recently by Adda and Cornaglia (2006). The objective of this paper is to examine this possibility in the context of a utility-maximizing model of smoking that is based on known toxicological patterns. After calibrating this model to re?ect observed behaviors, it is concluded that continuing smokers o¤set about one third of the quantity-reducing impact of higher taxes. Compensatory behavior thus reduces tax e¤ectiveness, but does not render it neutral. While toxicology has long recognized that nicotine inventory management is a key ingredient in smoking behaviour, this paper is the ?rst to incorporate such knowledge into a utility-price based maximizing model.

Suggested Citation

  • Ian Irvine, 2008. "Smoking Intensity, Compensatory Behavior and Tobacco Tax Policy," Working Papers 200818, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:200818
    as

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    File URL: https://geary.ucd.ie/workingpapers/workingpapers/gearywp200818.pdf
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    References listed on IDEAS

    as
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    6. Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
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    8. Gospodinov, Nikolay & Irvine, Ian, 2009. "Tobacco taxes and regressivity," Journal of Health Economics, Elsevier, vol. 28(2), pages 375-384, March.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A snag with Increased taxes on cigarettes
      by Kevin Denny in Geary Behaviour Centre on 2009-03-20 13:43:00

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    Keywords

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    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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