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

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  • Donald S. Kenkel
  • Maximilian D. Schmeiser
  • Carly J. Urban

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.

Suggested Citation

  • Donald S. Kenkel & Maximilian D. Schmeiser & Carly J. Urban, 2014. "Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit," NBER Working Papers 20097, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20097
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    References listed on IDEAS

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health

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