Taxes, Cigarette Consumption, and Smoking Intensity

Jerome Adda and Francesca Cornaglia

American Economic Review, 2006, vol. 96, issue 4, 1013-1028

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)

Date: 2006
Note: DOI: 10.1257/aer.96.4.1013
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