NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

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

Donald S. Kenkel, Maximilian D. Schmeiser, Carly J. Urban

NBER Working Paper No. 20097
Issued in May 2014
NBER Program(s):   HE

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.

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Document Object Identifier (DOI): 10.3386/w20097

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