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Smoking Intensity, Compensatory Behavior and Tobacco Tax Policy

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  • Ian Irvine

    (Concordia University, Montreal, Canada)

Abstract

Smokers not only choose the number of cigarettes to smoke in any given period on the basis of price, they also choose the intensity with which to smoke - that is, how much nicotine to inhale. The possibility that quantity-reducing tax policies may be mitigated, or even completely offset, by higher intensity has been raised recently by Adda and Cornaglia (2006). The objective of this paper is to examine this possibility in the context of a utility-maximizing model of smoking that is based on known toxicological patterns. After calibrating this model to re?ect observed behaviors, it is concluded that continuing smokers o¤set about one third of the quantity-reducing impact of higher taxes. Compensatory behavior thus reduces tax e¤ectiveness, but does not render it neutral. While toxicology has long recognized that nicotine inventory management is a key ingredient in smoking behaviour, this paper is the ?rst to incorporate such knowledge into a utility-price based maximizing model.

Suggested Citation

  • Ian Irvine, 2008. "Smoking Intensity, Compensatory Behavior and Tobacco Tax Policy," Working Papers 200818, Geary Institute, University College Dublin.
    • Handle: RePEc:ucd:wpaper:200818
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    References listed on IDEAS

    as
    1. Harris, Jeffrey E, 1980. "Taxing Tar and Nicotine," American Economic Review, American Economic Association, vol. 70(3), pages 300-311, June.
    2. Chaloupka, Frank J. & Warner, Kenneth E., 2000. "The economics of smoking," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 29, pages 1539-1627, Elsevier.
    3. Cragg, John G, 1971. "Some Statistical Models for Limited Dependent Variables with Application to the Demand for Durable Goods," Econometrica, Econometric Society, vol. 39(5), pages 829-844, September.
    4. Andrew M. Jones, 2012. "health econometrics," The New Palgrave Dictionary of Economics,, Palgrave Macmillan.
    5. M.C. Farrelly & C.T. Nimsch & A. Hyland & M. Cummings, 2004. "The effects of higher cigarette prices on tar and nicotine consumption in a cohort of adult smokers," Health Economics, John Wiley & Sons, Ltd., vol. 13(1), pages 49-58, January.
    6. Gruber, Jonathan & Koszegi, Botond, 2004. "Tax incidence when individuals are time-inconsistent: the case of cigarette excise taxes," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1959-1987, August.
    7. Jérôme Adda & Francesca Cornaglia, 2006. "Taxes, Cigarette Consumption, and Smoking Intensity," American Economic Review, American Economic Association, vol. 96(4), pages 1013-1028, September.
    8. Gospodinov, Nikolay & Irvine, Ian, 2009. "Tobacco taxes and regressivity," Journal of Health Economics, Elsevier, vol. 28(2), pages 375-384, March.
    9. Becker, Gary S & Murphy, Kevin M, 1988. "A Theory of Rational Addiction," Journal of Political Economy, University of Chicago Press, vol. 96(4), pages 675-700, August.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. A snag with Increased taxes on cigarettes
      by Kevin Denny in Geary Behaviour Centre on 2009-03-20 13:43:00

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    More about this item

    Keywords

    tobacco; nicotine; cotinine; intensity;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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