We then compute the mean level of unhappiness and excise taxes for each predicted smoker group in each province in each survey year, and regress the change in mean happiness on the change in mean excise taxes separately for each group, including a full set of year dummies to capture time trends. For predicted smokers, this changes regression yields a coefficient of -0.044 (0.016). This result confirms that, for predicted smokers, there is a short-run negative effect of higher taxes on unhappiness; when taxes rise, happiness falls. For predicted non-smokers, on the other hand, we obtain an insignificant estimate of -0.009 (0.008), confirming the causal interpretation of our finding for predicted smokers.
Thus, it appears that the impact of taxes on unhappiness does occur in the short run, which is consistently only with the sophisticated time inconsistent model. Of course, even this evidence is not dispositive, as our differences are taken over one or more years. If the costs of quitting are high enough and/or discount rates are high enough, even within one year a time consistent smoker could be made better off from reducing smoking. But the overall pattern of findings remains much more consistent with the time consistent alternative than with the rational addiction model. Click Here
The results in this paper have potentially important implications for how policy makers should view smoking in general and cigarette taxes in particular. In particular, they suggest that smokers themselves may be made better off by cigarette taxes. This result is inconsistent with several rational views of smoking that would view such a tax as a pure hindrance on smokers, and more consistent with behavioral time-inconsistent models in which these taxes may serve as self-control devices.
The methodology used in this paper should also have broader interest. Economists are often concerned with welfare, with how policies affect the happiness of people. Yet there are few tools for empirically assessing welfare. In the case of smoking, as with many other behaviors, behavioral reactions to changes in the environment can only provide limited insight into the welfare implications of policy interventions. Theories that have very different policy implications can accommodate a variety of behaviors and, as a consequence, empirical work on behavioral responses can leave us in the dark about welfare.
Subjective well-being measures provide a possible way to directly address welfare questions. As our analysis shows, this direct approach is empirically feasible. Happiness measures may be noisy, but in our case at least, they contain sufficient signal to discern effects of moderate size policies. This is heartening because happiness data is abundant. In the US, the GSS is available in moderately large samples for many years. Looking beyond the US, the Canada data we use is not the exception but rather the rule: many countries, notably in Europe, collect cross-sections and panel data on happiness. In short, the results in this paper suggest that by using happiness data, economists may be able to directly assess the impacts of public policy on well-being.