Does traditional price policy work for achieving low smoking rate? –Empirical and theoretical evaluation based on the United States aggregate data

Abstract

In the United States, smoking has been strictly restricted by both federal and state governments. Almost all the policies have imposed high tax on cigarettes for decreasing the number of smokers. In fact, the smoking rate has fallen in the past few decades among the population. The main objective of this study is to evaluate whether the ‘traditional’ policy still remains effective by applying the dynamic panel strategy to state-level aggregated data in the United States. Our result shows that the remaining smokers up to today are less sensitive to the price hikes than past smokers and that they are likely to ‘attenuate’ the cost of smoking by stockpiling in advance of the policy enactment when they expect the increase of future price. The empirical results suggest that an increase in the cost may no longer be so valid as it was in past decades.