AN EMPIRICAL-ANALYSIS OF CIGARETTE ADDICTION

To test a model of rational addiction, we examine whether lower past a nd future prices for cigarettes raise current cigarette consumption. T he empirical results tend to support the implication of addictive beha vior that cross price effects are negative and that long-run responses exceed short-run responses. Since the long-run price elasticity of de mand is almost twice as large as the short-run price elasticity, the l ong-run increase in tax revenue from an increase in the federal excise tax on cigarettes is considerably smaller than the short-run increase .