To assess the effect of taxes, we match these data to cigarette exercise tax data in each country. In both the US and Canada, states and provinces have independently changed their taxes over time, giving us significant variation to estimate the effect of cigarette tax changes on self-reported happiness. However, looking at how these tax changes affect happiness in the state or province as a whole would cause problems if other factors are changing along with these taxes. We, therefore, examine how tax changes differentially affect the happiness of those in a state who are predicted to be smokers. This strategy in essence uses those who are predicted to be non-smokers as a way of controlling for other shocks contemporaneous with cigarette tax changes.
Our results are striking: those who are predicted to be smokers are significantly happier when excise taxes rise. The fact that this conclusion emerges so clearly in two independent data sets, with different distributions of underlying happiness indicators, is quite striking. In both countries, the estimated effects appear surprisingly large. This evidence is very robust to a battery of specification checks across both countries. And our findings are inconsistent with two alternative explanations for our results, interpersonal externalities within the family, and long run impacts of taxes in a time consistent setting. Overall, our findings are consistent with time inconsistent models of smoking and provide early evidence that cigarette taxes may serve to actually increase the welfare of smokers themselves.
Our paper proceeds as follows. In Part I, we discuss the alternative predictions for the impact of cigarette taxes on happiness, the models that underlie those predictions, and the importance of assessing the impact of cigarette taxation on welfare, in terms of optimal government policy. In Part II, we discuss the use of subjective well being indicators as a measure of welfare. In Part III, we discuss our data source and our empirical strategy. Part IV presents basic results and our battery of specification checks. Part V then explores two alternative explanations for our findings: intra-family externalities and long run averaging. Part VI concludes. natural inhalers for asthma
Smoking Behavior and Policy
The key question that we propose to assess in this paper is whether cigarette taxation raises or lowers the happiness of potential smokers. In this section, we expand on why cigarette taxation might have either positive or negative effects on happiness. We then discuss the strong differences in government policy implied by these different models.
Cigarette taxes will decrease happiness among smokers under the rational addiction model of Becker and Murphy. Becker and Murphy model the act of smoking as the building of an addiction stock. The more cigarettes smoked today, the greater the addiction capital tomorrow.