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Taxes, Cigarette Consumption, and Smoking Intensity

Jérôme Adda^1,2; Francesca Cornaglia^3,4,2,5

¹ Institute for Fiscal Studies · ² University College London · ³ Queen Mary University of London · ⁴ IZA - Institute of Labor Economics · ⁵ London School of Economics and Political Science

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 tax hikes by extracting more nicotine per cigarette. Our study makes two important contributions. First, as smoking more intensively a given cigarette 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 severe estimation biases.

DOI

10.1257/000282806779468553

Volume

96 (4)

Pages

1013-1028

Language

en

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BibTeX

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