American Economic Review: Vol. 96 No. 4 (September 2006)
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Taxes, Cigarette Consumption, and Smoking Intensity
Adda, Jérôme, and Francesca Cornaglia. 2006. "Taxes, Cigarette Consumption, and Smoking Intensity." American Economic Review, 96(4): 1013-1028.
This paper analyses the compensatory behavior of smokers. Exploiting data on cotinine concentrationa metabolite of nicotinemeasured 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)
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