Association for Public Policy Analysis & Management

The relationship between smoking restrictions, cigarette taxation, and individual well-being has significant implications for establishing whether observed behavior is consistent with various theoretical models of addiction. For example, under rational addiction models, higher taxation and smoking bans should reduce the welfare of perfectly forward-looking smokers. Alternatively, models that assume smoker preferences are inconsistent over time predict that smokers will be better off after the introduction of smoking bans or cigarette tax increases.

We use data from the Behavioral Risk Factor Surveillance System (BRFSS) from 2005 through 2010 to estimate the effects of smoking bans and increased cigarette taxes on the well-being of smokers and nonsmokers. Results suggest that, in contrast to models of time inconsistent preferences and hyperbolic discounting among smokers, cigarette tax increases do not improve smoker welfare. Additionally, while marginal smokers, those with a quit attempt in the past year, are made better off when restaurant or bar smoking bans are introduced, the evidence on tobacco taxation and well-being for marginal smokers is mixed. The policy implications of these findings extend to issues concerning the optimal taxation of tobacco products and the potential welfare effects of smoke-free legislation.