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Addiction and the Interaction between Alcohol and Tobacco Consumption


  • Pierpaolo Pierani


  • Silvia Tiezzi



This paper adopts a multi-commodity habit formation model to study whether unhealthy behaviours are related, i.e. whether there are contemporaneous and inter temporal complementarities in Italian consumption of alcohol and tobacco. Own and crossprice elasticities, as well as the income elasticities, are calculated from the parameters of a semi-reduced system estimated on aggregate annual time series for alcohol and tobacco expenditures over the period 1960-2002. Own price elasticities are negative and tobacco appears to be more responsive than alcohol demand, although both responses are less than unity. Cross price elasticities are also negative and asymmetric showing that alcohol and tobacco are complements. Whereby a ”double dividend” could then be exploited, because public policy needs to tackle the consumption of one good only to control the demand of both. The asymmetry in the values of the cross price elasticities coupled with the relative magnitude of the own price responses suggest that the optimal strategy for maximizing public revenues through increases in ”sin” goods excise taxation would be to raise alcohol taxation more than tobacco. Finally, past consumption of one addictive good does not significantly reinforce current consumption of the other addictive good

Suggested Citation

  • Pierpaolo Pierani & Silvia Tiezzi, 2005. "Addiction and the Interaction between Alcohol and Tobacco Consumption," Department of Economics University of Siena 470, Department of Economics, University of Siena.
  • Handle: RePEc:usi:wpaper:470

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    References listed on IDEAS

    1. Ignacio Palacios-Huerta, 2001. "Multiple Addictions," Working Papers 2001-20, Brown University, Department of Economics.
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    Cited by:

    1. Koksal, Aycan & Wohlgenant, Michael, 2013. "Pseudo Panel Data Estimation Technique and Rational Addiction Model: An Analysis of Tobacco, Alcohol and Coffee Demands," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150457, Agricultural and Applied Economics Association.
    2. David Aristei & Luca Pieroni, 2010. "Habits, Complementarities and Heterogeneity in Alcohol and Tobacco Demand: A Multivariate Dynamic Model," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 72(4), pages 428-457, August.
    3. Koksal, Aycan & Wohlgenant, Michael, 2013. "Interdependence of Tobacco and Alcohol Consumption: A Natural Experiment Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150459, Agricultural and Applied Economics Association.
    4. Abdulbaki Bilgic & Wojciech Florkowski & Cuma Akbay, 2010. "Demand for cigarettes in Turkey: an application of count data models," Empirical Economics, Springer, vol. 39(3), pages 733-765, December.
    5. Ida, Takanori, 2010. "Anomaly, impulsivity, and addiction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(2), pages 194-203, April.

    More about this item


    addiction models; sin goods; GMM estimator;

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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