Tobacco Use, Taxation and Self Control in Adolescence
Recent literature has suggested that higher taxes on addictive goods could increase welfare by assisting individuals with self control problems and trouble resisting 'temptation'. In contrast, if individuals continue to use despite increased prices, taxation may serve to reduce the welfare of these individuals while providing no benefits in managing self control nor mitigating externalities. We use data on adolescents from the National Longitudinal Study of Adolescent Health (Add Health) to examine the impact of tobacco taxes on smoking. To account for unobserved heterogeneity in response to taxes we estimate finite mixture models, positing two types of individuals with differential responses to taxes. We find evidence of differential price elasticity for tobacco use across the adolescents groups, and show that individuals with low self control or high discount rates are largely unresponsive to cigarette price. Those who have the least willpower may need the most help in quitting but are unresponsive to taxes, suggesting that policies other than taxation may be needed to reduce adolescent tobacco use.
This work was supported by Grant Number RL1AA017542 from the National Institute on Alcohol Abuse and Alcoholism and Grant Number R01AG027045 from the National Institute on Aging. The content is solely the responsibility of the authors and does not necessarily represent the official views of the National Institute on Alcohol Abuse and Alcoholism, National Institute on Aging, or the National Institutes of Health. We thank Donald Kenkel at Cornell for his very helpful comments. This research uses data from Add Health, a program project designed by J. Richard Udry, Peter S. Bearman, and Kathleen Mullan Harris, and funded by a grant P01-HD31921 from the National Institute of Child Health and Human Development, with cooperative funding from 17 other agencies. Special acknowledgment is due Ronald R. Rindfuss and Barbara Entwisle for assistance in the original design. Because of restrictions on the use of Add Health data, the authors may share only their programming code. Persons interested in obtaining data files from Add Health should contact Add Health, Carolina Population Center, 123 W. Franklin Street, Chapel Hill, NC 27516-2524 (firstname.lastname@example.org). The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.