Tobacco Use, Taxation and Self Control in Adolescence

Jason Fletcher, Partha Deb and Jody L. Sindelar

No 15130, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Recent literature has suggested that higher taxes on addictive goods could increase welfare by assisting individuals with self control problems and trouble resisting 'temptation'. In contrast, if individuals continue to use despite increased prices, taxation may serve to reduce the welfare of these individuals while providing no benefits in managing self control nor mitigating externalities. We use data on adolescents from the National Longitudinal Study of Adolescent Health (Add Health) to examine the impact of tobacco taxes on smoking. To account for unobserved heterogeneity in response to taxes we estimate finite mixture models, positing two types of individuals with differential responses to taxes. We find evidence of differential price elasticity for tobacco use across the adolescents groups, and show that individuals with low self control or high discount rates are largely unresponsive to cigarette price. Those who have the least willpower may need the most help in quitting but are unresponsive to taxes, suggesting that policies other than taxation may be needed to reduce adolescent tobacco use.

JEL-codes: H75 I0 I1 I18 I3 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-hea and nep-pub
Note: AG EH
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Citations: View citations in EconPapers (26)

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