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Do Cigarette Taxes Make Smokers Happier?

In: Happiness and Public Policy

Author

Listed:
  • Jonathan Gruber
  • Sendhil Mullainathan
Abstract
Economists have a well-established framework for understanding the welfare consequences of taxing goods that don’t create externalities. Taxes create dead-weight loss by causing consumers to distort their consumption away from their preferred choices. This cost is weighed against the benefits of government revenue. As established in the seminal analysis of Becker and Murphy (1988), this argument applies equally well to both addictive and nonaddictive goods. The same type of revealed preference arguments that suggest that taxes reduce the welfare of consumers of nonaddictive goods can be extended to “rational addicts”: agents decide to smoke by trading off the long-term costs of consumption against the immediate pleasures of consuming, all the while taking into account the addictive properties of the good in question. This model therefore suggests that the only justification for taxing addictive goods is the interpersonal externalities associated with consumption of those goods.

Suggested Citation

  • Jonathan Gruber & Sendhil Mullainathan, 2006. "Do Cigarette Taxes Make Smokers Happier?," Palgrave Macmillan Books, in: Yew-Kwang Ng & Lok Sang Ho (ed.), Happiness and Public Policy, chapter 6, pages 109-146, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-0-230-28802-7_6
    DOI: 10.1057/9780230288027_6
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    References listed on IDEAS

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    More about this item

    Keywords

    General Social Survey; Income Quartile; Linear Time Trend; State Dummy; General Social Survey Data;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health

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