Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit

Donald Kenkel, Maximilian Schmeiser and Carly J. Urban

No 20097, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper we estimate the causal income elasticity of smoking participation, cessation, and cigarette demand conditional upon participation. Using an instrumental variables (IV) estimation strategy we find that smoking appears to be a normal good among low-income adults: higher instrumented income is associated with an increase in the number of cigarettes consumed and a decrease in smoking cessation. The magnitude and direction of the changes in the income coefficients from our OLS to IV estimates are consistent with the hypothesis that correlational estimates between income and smoking related outcomes are biased by unobservable characteristics that differentiate higher income smokers from lower income smokers.

JEL-codes: H2 I1 (search for similar items in EconPapers)
Date: 2014-05
New Economics Papers: this item is included in nep-hea
Note: EH
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Published as Donald S. Kenkel & Maximilian D. Schmeiser & Carly Urban, 2014. "Is Smoking Inferior?: Evidence from Variation in the Earned Income Tax Credit," Journal of Human Resources, University of Wisconsin Press, vol. 49(4), pages 1094-1120.

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