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Taxes, Cigarette Consumption, and Smoking Intensity

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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.

Document Type: Research Article

DOI: https://doi.org/10.1257/000282806779468553

Publication date: 2006-09-01

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