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  3. American Economic Review
  4. September 2006
  5. Taxes, Cigarette Consumption, and Smoking Intensity

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Taxes, Cigarette Consumption, and Smoking Intensity

  • Jérôme Adda
  • Francesca Cornaglia
American Economic Review
vol. 96, no. 4, September 2006
(pp. 1013–1028)
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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. (JEL D12, H25, I12)

Citation

Adda, Jérôme, and Francesca Cornaglia. 2006. "Taxes, Cigarette Consumption, and Smoking Intensity." American Economic Review, 96 (4): 1013–1028. DOI: 10.1257/aer.96.4.1013

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • H25 Business Taxes and Subsidies including sales and value-added (VAT)
  • I12 Health Production