Elsevier

Economics Letters

Volume 58, Issue 1, 1 January 1998, Pages 85-89
Economics Letters

Taxation or regulation:: Looking for a good anti-smoking policy

https://doi.org/10.1016/S0165-1765(97)00258-9Get rights and content

Abstract

This paper investigates the relative ability of two anti-smoking policies, taxes and regulation, in inducing reductions in cigarette consumption and in providing incentives to stop smoking (or not to start to). Our results based on Canadian data show that cigarette demand responds to taxes (elasticity of −0.28), but not to regulation, while the converse is true for the proportion of smokers in the population.

Introduction

Are regulation and taxation efficient policy instruments to achieve reductions in cigarette consumption? Which one is better, if any? Economists have made certain attempts to answer these important questions. In particular, a number of papers have looked at the impact of changing taxation on cigarette consumption2 (a notable difficulty in these studies is that smuggling activities can bias the estimates of cigarette consumption, especially in Canada). Only a few researchers (e.g., Wasserman et al., 1991) have examined the relative role of both instruments in inducing consumption reduction, but this was done in the American context and limited to certain aspects of regulation.

This paper complements the literature in several ways: 1) It is the first study to examine the relative role of taxation and regulation in Canada; this is a useful exercise given that Canada and the U.S. have implemented different sets of policies against smoking (higher taxes and more stringent regulation on advertisement and labeling in Canada); 2) our measure of regulation accounts for all the principal aspects of this kind of policy (regulating smoking in public places, advertisement, labeling, access to cigarettes for teenagers); 3) for the first time, we use the proportion of smokers in the population as a measure of the incidence of smoking (which should not be biased by smuggling); given that one of the objectives of anti-smoking policies is, not only to induce reductions in cigarette demand, but also to provide incentives to quit smoking (or not to start to), looking at the impact of anti-smoking policies on the decision to smoke or not is of interest in its own sake; and 4) when computing our estimates of cigarette consumption, we account for smuggling in a more direct way than previous studies; interestingly, we get a fairly different picture of the situation when smuggling is considered. The rest of the paper is organized as follows. The next section presents our empirical model and data. Section 3discusses our empirical results showing that taxes have an effect on the quantity of cigarettes smoked, but not on the proportion of smokers, while regulation has opposite effects (a negative influence on the percentage of smokers but no impact on cigarettes consumption). Section 4provides some concluding remarks.

Section snippets

Empirical model and data

In the literature, researchers have modeled cigarette incidence in different ways (see Becker et al., 1994, for more details). Preliminary tests (available upon request) led us to choose the «myopic» or partial adjustment model of cigarette incidence (see Fujii, 1980) in which cigarette incidence is regressed on price, income, regulation, socio-demographic control variables and the lagged dependent variable. We use two concepts of smoking incidence: cigarette consumption and the percentage of

Empirical results

Four regressions are reported in Table 1, using our four dependent variables5. Equations are estimated using a generalized least-squares (GLS) procedure based on the cross-sectionally heteroskedastic and time-wise autoregressive model presented in Kmenta (Kmenta, 1986, pp. 616–625). In the CONSUMPTION equations, the coefficient of the

Conclusion

This paper has investigated the relative ability of two anti-smoking policies, taxes and regulation, in inducing cigarette demand reductions and in providing incentives to stop smoking (or not to start to). The analysis was based on Canadian data at the provincial level for the period 1980–1995. Our results showed that cigarette demand responds to taxes (elasticity of −0.28), but not to regulation, while the converse is true for the proportion of smokers in the population. This suggests that

Acknowledgements

Financial support of the Fonds FCAR is gratefully acknowledged. We also thank Ruth Dupré for very helpful comments.

References (7)

  • Becker, G., Grossman, M., Murphy, K., 1994. An empirical analysis of cigarette addiction. American Economic Review,...
  • Fujii, E.T., 1980. The demand for cigarettes: Further empirical evidence and its implication for public policy. Applied...
  • Kmenta, J., 1986. Elements of Econometrics, 2nd ed. Macmillan, New...
There are more references available in the full text version of this article.

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