Addiction and the Interaction between Alcohol and Tobacco Consumption

Pierpaolo Pierani () and Silvia Tiezzi

Department of Economics University of Siena from Department of Economics, University of Siena

Abstract: This paper adopts a multi-commodity habit formation model to study whether unhealthy behaviours are related, i.e. whether there are contemporaneous and inter temporal complementarities in Italian consumption of alcohol and tobacco. Own and crossprice elasticities, as well as the income elasticities, are calculated from the parameters of a semi-reduced system estimated on aggregate annual time series for alcohol and tobacco expenditures over the period 1960-2002. Own price elasticities are negative and tobacco appears to be more responsive than alcohol demand, although both responses are less than unity. Cross price elasticities are also negative and asymmetric showing that alcohol and tobacco are complements. Whereby a ”double dividend” could then be exploited, because public policy needs to tackle the consumption of one good only to control the demand of both. The asymmetry in the values of the cross price elasticities coupled with the relative magnitude of the own price responses suggest that the optimal strategy for maximizing public revenues through increases in ”sin” goods excise taxation would be to raise alcohol taxation more than tobacco. Finally, past consumption of one addictive good does not significantly reinforce current consumption of the other addictive good

Keywords: addiction models; sin goods; GMM estimator (search for similar items in EconPapers)
JEL-codes: C32 D12 (search for similar items in EconPapers)
Date: 2005-11
New Economics Papers: this item is included in nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: Addiction and interaction between alcohol and tobacco consumption (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:usi:wpaper:470

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