Working Paper: NBER ID: w7535
Authors: Sandra L. Decker; Amy Ellen Schwartz
Abstract: Taxation of cigarettes and alcohol can raise revenue and reduce consumption of goods with negative external effects. Despite medical and psychological evidence linking their consumption, little previous work has investigated the significance of cross-price effects in cigarette and alcohol consumption. We use individual-level data from the Behavioral Risk Factor Surveillance System to investigate cigarette and alcohol consumption in the US, estimating both own and cross-price elasticities. Results suggest significant cross-price effects. Specifically, we find that higher alcohol prices decrease both alcohol consumption and smoking participation (suggesting a complementarity in consumption), while higher cigarette prices tend to decrease smoking participation but increase drinking. The significance of these findings suggests that further work is warranted to better understand the social and economic relationship between cigarette and alcohol consumption.
Keywords: cigarettes; alcohol; cross-price elasticity; taxation; public health
JEL Codes: H20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher alcohol prices (H29) | Decreased alcohol consumption (L66) |
| Higher alcohol prices (H29) | Decreased smoking participation (I12) |
| Higher cigarette prices (D49) | Decreased smoking participation (I12) |
| Higher cigarette prices (D49) | Increased drinking (L66) |
| Higher alcohol prices (H29) | Increased cross-price elasticity of demand for cigarettes (D49) |
| Higher cigarette prices (D49) | Increased cross-price elasticity of demand for alcohol (L66) |