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

Is Smoking Inferior?: Evidence from Variation in the Earned Income Tax Credit Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit Donald S. Kenkel Maximilian D. Schmeiser Carly Urban Kenkel, Schmeiser, and 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. I. Introduction Prices and income are central to the standard economic model of consumer demand. Estimates of the price-elasticity of cigarette demand continue to attract a great deal of attention because of their relevance to the role of excise taxes in tobacco control. In contrast, estimates of the income-elasticity of cigarette demand currently seem to attract much less attention from either economists or policymakers, and income is often considered only tangentially as a http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

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

Journal of Human Resources , Volume 49 (4) – Nov 5, 2014

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Publisher
University of Wisconsin Press
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©by the Board of Regents of the University of Wisconsin System
ISSN
1548-8004
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Abstract

Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit Donald S. Kenkel Maximilian D. Schmeiser Carly Urban Kenkel, Schmeiser, and 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. I. Introduction Prices and income are central to the standard economic model of consumer demand. Estimates of the price-elasticity of cigarette demand continue to attract a great deal of attention because of their relevance to the role of excise taxes in tobacco control. In contrast, estimates of the income-elasticity of cigarette demand currently seem to attract much less attention from either economists or policymakers, and income is often considered only tangentially as a

Journal

Journal of Human ResourcesUniversity of Wisconsin Press

Published: Nov 5, 2014

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