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.

KEYWORDS:

• Smoking policy
• Dynamic panel data
• Addiction
• Health economics

JEL CLASSIFICATION:

• I18
• I12

Acknowledgments

We are grateful to Reo Takaku and Yoshiaki Ogura for helpful comments and suggestions. The study has also benefited from comments received at the 8th workshop for young research fellows held by Japan Health Economics Association (on November 12, 2017 at Keio University) and European Health Economics Association (on July 13, 2018 in Maastricht, the Netherlands).

Data availability statement

The data described in this article are openly available in the Open Science Framework at DOI in.

Notes

¹ Of course, the evident and robust result of forward-looking of smokers in these researches strongly reject MBM.

² This model assumes an individual has two different types of personalities (in ‘cool’ and ‘hot’ modes). And, when the individual is in cool mode, he or she can execute rational decision-making, but he or she impulsively goes ahead to addictive goods when (s)he is in hot mode.

³ We find only one research in the 2010s (Hidayat and Thabrany 2011) which is implemented in almost the same framework of BGM or Chaloupka (1991).

⁴ Cited from https://www.cnbc.com/2018/11/08/cdc-says-smoking-rates-fall-to-record-low-in-us.html (Accessed 16 February 2020).

⁵ Derived from http://www.mhlw.go.jp/stf/seisakunitsuite/bunya/kenkou_iryou/kenkou/tobacco/index.html (Ministry of Health, Labour and Welfare, in Japanese) (Accessed 16 February 2020).

⁶ Cited from https://www.medicaid.gov/chip/chipra/index.html (Accessed 16 February 2020).

⁷ The word ‘year’ in this context means the fiscal year beginning on 1 July. For example, if the year is during 2000, this is the same as ‘7/1/1999 – 6/30/2000’.

⁸ In constructing a dynamic model, I refer to the structure in Fu and Noguchi (2018, 1006-07).

⁹ Hereafter, we denote $Somethin{g}_{st}-Somethin{g}_{s,t-1}$ as $\mathrm{\Delta }Somethin{g}_{st}$.

¹⁰ In this regression, the z-value of otherchange is 1.55 (0.0334/0.0216) and corresponding p-value of two-sided test in the standard normal distribution is equal to 0.122.

¹¹ Please see the link given in the footnote 6.

¹² For the simplicity, the amount of cost is assumed constant over time.

¹³ ‘Steady state (SS)’ is defined as ‘an equilibrium’, where all of the decision-making variables keep unchanged. SS can be stable or unstable. In the economy of stable SS, even after the exogenous shock, the economy converges to the SS again. On the other hand, in the case of unstable SS, the economy never returns to the original SS.

Additional information

Funding

This study is financially supported by Research Grant for Constructing the Foundation of Information and Communication Technology (ICT) provided by Japan Agency for Medical Research and Development (AMED) (Principal Investigator: Naohiro Mitsutake, Institute for Health Economics and Policy) and also Organization for University Research Initiatives of Waseda University.