Smoking: taxing health and Social Security

Brian S. Armour and Melinda Pitts

No 2006-12, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: While the health risks associated with smoking are well known, the impact on income distributions is not. This paper extends the literature by examining the distributional effects of a behavioral choice, in this case smoking, on net marginal Social Security tax rates (NMSSTR). The results show that smokers, as a result of shorter life expectancies, incur a higher NMSSTR than nonsmokers. In addition, as low-earnings workers have a higher smoking prevalence than high-earnings workers, smoking works to widen the income distribution. This higher tax rate could have implications for both labor supply behavior and Social Security system funding.

Date: 2006
New Economics Papers: this item is included in nep-hea, nep-pbe, nep-pub and nep-reg
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Journal Article: Smoking: taxing health and Social Security (2007)
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