Taxes, Cigarette Consumption, and Smoking Intensity
Jérôme Adda, Francesca Cornaglia
American Economic Review · 2006 · Volume 96 · Issue 4
Abstract
This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentrationa metabolite of nicotinemeasured in a large population of smokers over time, we show that smokers compensate for tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking a given cigarette more intensively 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 estimation biases. (JEL D12, H25, I12)
Keywords
Consumer Economics: Empirical Analysis, Business Taxes and Subsidies including sales and value-added (VAT), Health Production
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