Taxes: Can They Make Smokers Happier?

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THE STUDY APRIL 18, 2011

Taxes: Can They Make Smokers Happier?

Millions of Americans are filing tax returns today, an exercise that is almost certainly not on anyone's "favorite things to do" list. In recent years, though, thanks to the unpopularity of tobacco companies, and the terrible smells emanating from any and all smoking sections, cigarette taxes have remained that rarest of American institutions: a popular tax. Supporters argue that taxes discourage use, but what is the overall effect? Do cigarette taxes make smokers happier?

In 2002, MIT professors Sendhil Mullainathan and Jonathan Gruber (who is best known as a health care adviser to both Obama and Romney) looked at the effects of cigarette taxes on happiness in the United States and Canada. "We do so," they wrote, "by matching information on cigarette excise taxation to separate surveys from the U.S. and Canada that contain data on self-reported happiness." Gruber and Mullainathan took advantage of the "significant variation" in state and province cigarette taxes "to estimate the effect of cigarette tax changes on self-reported happiness." Overall, they found "those who are predicted to be smokers are significantly happier when excise taxes rise." More specifically, in both the United States and Canada, cigarette taxes had a small effect on the probability of smokers answering "very happy" or "pretty happy," but the largest difference comes at the other end: in both countries, the tax had "negative and very significant effect on the probability of answering 'Not happy.'" Gruber and Mullainathan calculated that each cent of cigarette excise tax reduced unhappiness among smokers by 0.048 percentage points in Canada, and 0.156 percentage points in the U.S. The authors conclude that "smokers themselves may be made better off by cigarette taxes. This result is inconsistent with several rational views of smoking that would view such a tax as a pure hindrance on smokers, and more consistent with behavioral time-inconsistent models in which these taxes may serve as self-control devices." Either way, one thing is clear: Joe Camel's got  nothing on the almighty dollar.

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posted in: the study, canada, united states, jonathan gruber, sendhil mullainathan, mit

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