THE IMPACT OF PRICES AND REGULATIONS ON THE DEMAND FOR ADDICTIVE "BADS": A CASE ANALYSIS OF CIGARETTE CONSUMPTION AND ITS LESSONS FOR THE DRUG LEGALIZATION DEBATE
Gorgal, Diego Pablo
Since the release of the 1964 Surgeon General's Report on Smoking and Health, US public attitudes and policy towards tobacco products have dramatically changed. Since 1980, cigarette consumption per capita has constantly decreased, whereas prices--mostly due to large increments in tobacco taxes--have been steadily rising. Consequently, a significant body of research has argued that the higher tobacco taxes, along with the regulations restricting tobacco access, advertising, and use adopted in the 1990s and 2000s, explain the surprising shift in tobacco consumption in the U.S. Using the CDC's Behavioral Risk Factor Surveillance Survey as the primary dataset, this study examines the impact of (higher) prices and (tougher) regulations on smoking prevalence, intensity, and cessation rates in the U.S. between 1993 and 2010. The analysis employs linear probability and negative binominal count models, with State and years fixed effects. It results in three key findings: (1) price-elasticity estimates of -0.061 for the probability of being smoker (smoking prevalence); 0.107 for the probability of being a casual versus a regular smoker and -0.08 for the number of cigarettes smoked daily (both measures of smoking intensity); 0.074 for the probability of attempting to quit (smoking cessation); (2) the overwhelmingly majority of regulation responsiveness estimates are not statistically significant; and (3) estimates for the effects of tobacco treatment and prevention programs are also statistically insignificant. While statistically significant, the price elasticity estimates are much smaller than most of the studies published in the 1990s and 2000s. Although many methodological aspects of this study require improvements before embracing conclusive implications, these findings may shed some light on the drug legalization debate. While anti-prohibition advocates claim that a legalized drug demand might be controlled through taxes and regulations, this study's findings call that view into question. If taxes and regulations do not have either economically or statistically significant impact on the prevalence, intensity, and cessation of an addictive "bad" consumption, as seems to be the case for cigarette consumption, as shown here, the idea of drug legalization requires further research before considering it in the policy realm.
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