Freeman Spogli Institute for International Studies Center for Health Policy/Center for Primary Care and Outcomes Research Stanford University


CHP/PCOR Publications


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Taxation, Regulation, and Addiction: A Demand Function for Cigarettes Based on Time-Series Evidence

Journal Article

Authors
Theodore E. Keeler
Teh-Wei Hu
Paul G. Barnett - Stanford University
Williard G. Manning

Published by
Journal of Health Economics, Vol. 12 no. 1, page(s) 1-18
April 1993


This work analyzes the effects of prices, taxes, income, and anti-smoking regulations on the consumption of cigarettes in California (a 25-cent-per-pack state tax increase in 1989 enhances the usefulness of this exercise). Analysis is based on monthly time-series data for 1980 through 1990. Results show a price elasticity of demand for cigarettes in the short run of -0.3 to -0.5 at mean data values, and -0.5 to -0.6 in the long run. We find at least some support for two further hypotheses: that antismoking regulations reduce cigarette consumption, and that consumers behave consistently with the model of rational addiction.

Topics: Economics