Working Paper: NBER ID: w15130
Authors: Jason M. Fletcher; Partha Deb; Jody L. Sindelar
Abstract: Recent literature has suggested that higher taxes on addictive goods could increase welfare by assisting individuals with self control problems and trouble resisting 'temptation'. In contrast, if individuals continue to use despite increased prices, taxation may serve to reduce the welfare of these individuals while providing no benefits in managing self control nor mitigating externalities. We use data on adolescents from the National Longitudinal Study of Adolescent Health (Add Health) to examine the impact of tobacco taxes on smoking. To account for unobserved heterogeneity in response to taxes we estimate finite mixture models, positing two types of individuals with differential responses to taxes. We find evidence of differential price elasticity for tobacco use across the adolescents groups, and show that individuals with low self control or high discount rates are largely unresponsive to cigarette price. Those who have the least willpower may need the most help in quitting but are unresponsive to taxes, suggesting that policies other than taxation may be needed to reduce adolescent tobacco use.
Keywords: Tobacco Taxation; Self-Control; Adolescence; Behavioral Economics
JEL Codes: H75; I0; I1; I18; I3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher tobacco taxes (H29) | Reduced consumption among adolescents (D19) |
| Higher tobacco taxes (H29) | Reduced consumption among sensitive adolescents (D12) |
| Higher tobacco taxes (H29) | Minimal responsiveness among low self-control adolescents (D91) |
| Self-control (G53) | Responsiveness to tobacco taxes (H29) |