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Do Cigarette Taxes Make Smokers Happier?

Do Cigarette Taxes Make Smokers Happier?

"The authors find that higher cigarette taxes are in fact associated with a large increase in self-reported well-being in both the United States and Canada."

Eight out of ten smokers in America say they want to quit their habit.

This type of response is consistent with descriptions of behavior suggesting that individuals have “self-control problems” and are not able to make long-term plans (such as quitting smoking) and consistently carry them out. At thesame time, there is clear evidence that higher cigarette prices deter smoking. Thus, government actions to raise the priceof cigarettes may serves as “commitment devices” that help smokers to achievethe outcome they want, which is to reduce their consumption of this addictive good.

In Do Cigarette Taxes Make Smokers Happier? (NBER Working Paper No. 8872), authors Jonathan Gruber and Sendhil Mullainathan ask whether cigarette taxes actually can make smokers better off. They do this by directly examining the impact of cigarette taxes on individuals’ reports of their subjective well being. Using data from long-running surveys in both the United States and Canada, the authors assess what happens to self-reported well being among those likely to be smokers when state or provincial governments increase the taxes on cigarettes.

The authors find that higher cigarette taxes are in fact associated with a large increase in self-reported well-being in both the United States and Canada, among those likely to be smokers. Furthermore, they find that this increase is not present for other excise taxes, such as those on beer and alcohol, illustrating that this finding represents an effect of taxes on happiness through reduced smoking and not simply through changes in the size of government.

These findings imply that smokers do have self-control problems with their habit, and as such can be made better off by government policies to raise the price of cigarettes. Given that the damage that smokers do to themselves through shortening their lives is valued at roughly $35 per pack, high taxes on cigarettes may be justified. The authors also suggest that self-reported well being data may have broader value as a tool for economists to understand the welfare impacts of government policies.

-- Les Picker