American Economic Review Vol. 96 No. 4 2006

Taxes, Cigarette Consumption, and Smoking Intensity

Jérôme Adda¹; Francesca Cornaglia²

¹ Department of Economics, University College London, Gower Street, WC1E 6PT, London, and Institute for Fiscal Studies. · ² Department of Economics, University College London, Gower Street, WC1E 6PT, London.

Abstract

This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentration--a metabolite of nicotine--measured 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.

DOI

10.1257/aer.96.4.1013

Volume

96

Issue

4

Pages

1013-1028

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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