Working Paper: NBER ID: w4891
Authors: W. Kip Viscusi
Abstract: This paper assesses the appropriate cigarette tax needed to address potential market failures. There is no evidence of inadequate risk decisions by smokers regarding their own welfare. Detailed calculations of the financial externalities of smoking indicate that the financial savings from premature mortality in terms of lower nursing home costs and retirement pensions exceed the higher medical care and life insurance costs generated. The costs of environmental tobacco smoke are highly uncertain, but of potentially substantial magnitude. Even with recognition of these costs, current cigarette taxes exceed the magnitude of the estimated net externalities.
Keywords: Cigarette Taxation; Smoking Externalities; Public Health Economics
JEL Codes: I18; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher cigarette taxes (H29) | decreased consumption (E21) |
| higher cigarette taxes (H29) | smokers internalizing external costs (D62) |
| smokers internalizing external costs (D62) | adjusted smoking decisions (D91) |
| higher cigarette taxes (H29) | better social outcomes (I14) |
| current cigarette taxes (H29) | exceed estimated net externalities (D62) |