Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit

36 Pages Posted: 18 Nov 2011 Last revised: 3 Jul 2013

See all articles by Donald Kenkel

Donald Kenkel

Cornell University - Department of Policy Analysis & Management (PAM); National Bureau of Economic Research (NBER)

Maximilian D. Schmeiser

Amazon Lending

Carly Urban

Montana State University - Bozeman - Department of Agricultural Economics and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 1, 2013

Abstract

In this paper we estimate the income elasticity of smoking. In contrast to previous research, we address the econometric endogeneity of income as a determinant of smoking participation, cessation, and cigarette demand conditional upon participation. We use an instrumental variables (IV) estimation strategy that exploits exogenous variation in family income generated by changes in Federal and State Earned Income Tax Credit parameters. Using the IV strategy we find that smoking cigarettes appears to be a normal good among low-income adults: higher instrumented income is associated with a higher probability of smoking participation and a lower probability of smoking cessation. The magnitude and direction of the changes in the income coefficients from our OLS to IV estimates are consistent with the hypothesis that correlational estimates between income and smoking related outcomes are biased by unobservable characteristics that differentiate higher income smokers from lower income smokers.

Keywords: Smoking, Income Elasticity, Cigarettes, Earned Income Tax Credit, EITC 1

JEL Classification: I1, I12

Suggested Citation

Kenkel, Donald and Schmeiser, Maximilian D. and Urban, Carly, Is Smoking Inferior? Evidence from Variation in the Earned Income Tax Credit (July 1, 2013). Available at SSRN: https://ssrn.com/abstract=1961196 or http://dx.doi.org/10.2139/ssrn.1961196

Donald Kenkel

Cornell University - Department of Policy Analysis & Management (PAM) ( email )

120 Martha Van Rensselaer Hall
Ithaca, NY 14853
United States
607-255-2594 (Phone)
607-255-4071 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Maximilian D. Schmeiser (Contact Author)

Amazon Lending ( email )

Seattle, WA 98144
United States

Carly Urban

Montana State University - Bozeman - Department of Agricultural Economics and Economics ( email )

Bozeman, MT 59717-2920
United States
4069942005 (Phone)

HOME PAGE: http://www.montana.edu/urban

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