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Is Smoking a Fiscal Good?

Shantanu Bagchi () and James Feigenbaum ()

Review of Economic Dynamics, 2014, vol. 17, issue 1, 170-190

Abstract: Even though smokers incur higher health expenditures than nonsmokers of the same age, smokers have significantly higher mortality rates, so the expected lifetime health expenditure for a smoker is actually lower than for a nonsmoker. Because of this fact, some politicians and policy-makers have argued that society might actually be better off promoting smoking rather than discouraging it. We consider this argument in a general-equilibrium model where health expenditures are paid for by a single-payer health-care system financed by taxes. Because the percentage increase in the tax base is larger than the percentage increase in health-care expenditures, the elimination of smoking actually decreases the budget-balancing health-care tax rate. (Copyright: Elsevier)

Keywords: General equilibrium; Annuities; Bequests; Mortality risk; Overlapping generations; Smoking; Health expenditures; Single-payer health-care system; Social Security (search for similar items in EconPapers)
JEL-codes: E21 H51 I18 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1016/j.red.2013.04.002

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