Can Policy Changes Be Treated as Natural Experiments? Evidence from Cigarette Excise Taxes
44 Pages Posted: 17 May 2001
Date Written: May 2003
An important issue in public policy analysis is the potential endogeneity of the policies under study. We examine the extent to which such political endogeneity biases estimates of behavioral parameters by identifying the elasticity of demand for cigarettes using the timing of state legislative elections as an instrument for changes in cigarette excise taxes. We find sizable differences between our estimates and those cited in Chaloupka and Warner (2000), which treat cigarette taxes as exogenous. Our results add to a growing body of evidence that policy changes may be codetermined with the outcomes they are thought to influence.
Keywords: Policy endogeneity, Taxes, Tobacco
JEL Classification: H0, I1
Suggested Citation: Suggested Citation