Philip DeCicca

Putting Out the Fires: Will Higher Taxes Reduce the Onset of Youth Smoking?

This paper reexamines whether higher cigarette taxes will substantially reduce youth smoking. We study the impact of taxes during exactly the period in adolescence in which most smokers start their habits. We find weak or nonexistent tax effects in models of the onset of smoking between eighth and twelfth grades, models of the onset of heavy smoking between eighth and twelfth grades, and discrete‐time hazard models that include state fixed effects. We also provide a new perspective on the relationship between smoking and schooling: students who eventually drop out of school are already more likely to smoke in the eighth grade.

Local labor market fluctuations and health: Is there a connection and for whom?

We examine the relationship between local labor market conditions and several measures of health and health behaviors for a sample of working-aged men living in the 58 largest metropolitan areas in the United States. We find evidence of procyclical relationships for weight-related health and mental health for men with low ex ante employment probabilities. Separate estimates suggest worsening labor market conditions lead to weight gains and reduced mental health among African-American men and lower mental health among less-educated males. Among our findings, those related to mental health are most pronounced.

Cigarette Taxes and Older Adult Smoking: Evidence from Recent Large Tax Increases

While recent evidence casts some doubt, it is generally accepted that the price sensitivity of smoking varies inversely with age. We investigate the responsiveness of older adult smoking using variation from recent historically large cigarette tax increases in the United States. Using data from the Behavioral Risk Factor Surveillance System from 2000 to 2005, we find consistent evidence that higher taxes reduced smoking participation by older adults, especially those who are less educated and live in low-income households. Our findings run contrary to existing evidence which suggests that cessation behavior by older adults is not sensitive to price. Since a large literature suggests smoking cessation even later in life reduces morbidity and increases longevity, our findings may represent substantial gains in health among tax-induced quitters.

Who Pays Cigarette Taxes? the Impact of Consumer Price Search

We conduct an empirical study of the impact of consumer price search on the shifting of cigarette excise taxes to consumer prices. We use novel data on the prices that smokers report paying and document substantial price dispersion. We find that cigarette taxes are shifted at lower rates to carton buyers and, especially, smokers who buy cartons of cigarettes in a state other than their state of residence. We also find evidence that taxes are shifted at somewhat lower rates to the prices paid by heavier smokers and at somewhat higher rates to the prices paid by smokers of light cigarettes.

Excise tax avoidance: The case of state cigarette taxes

We conduct an applied welfare economics analysis of cigarette tax avoidance. We develop an extension of the standard formula for the optimal Pigouvian corrective tax to incorporate the possibility that consumers avoid the tax by making purchases in nearby lower tax jurisdictions. To provide a key parameter for our formula, we estimate a structural endogenous switching regression model of border-crossing and cigarette prices. In illustrative calculations, we find that for many states, after taking into account tax avoidance the optimal tax is at least 20% smaller than the standard Pigouvian tax that simply internalizes external costs. Our empirical estimate that tax avoidance strongly responds to the price differential is the main reason for this result. We also use our results to examine the benefits of replacing avoidable state excise taxes with a harder-to-avoid federal excise tax on cigarettes.

Managed care and medical expenditures of Medicare beneficiaries

This paper investigates the impact of Medicare HMO penetration on the medical care expenditures incurred by Medicare fee-for-service (FFS) enrollees. We find that increasing penetration leads to reduced spending on FFS beneficiaries. In particular, our estimates suggest that the increase in HMO penetration during our study period led to approximately a 7% decline in spending per FFS beneficiary. Similar models for various measures of health care utilization find penetration-induced reductions consistent with our spending estimates. Finally, we present evidence that suggests our estimated spending reductions are driven by beneficiaries who have at least one chronic condition.

Hours Flexibility and Retirement

Data from the Health and Retirement Study indicate that hours constraints are a common feature of jobs held by workers nearing retirement. We present a simple model that predicts that workers who are not free to lower their usual hours of work should be more likely than their unconstrained counterparts to retire by some future date. Our estimates, which are robust to various specifications, support this prediction. The amount by which being hours constrained is estimated to raise retirement probabilities is nearly as large as the effect of being in relatively poor health, suggesting an economically significant effect. (JEL J26, J22, J14)

The long-run impacts of early childhood education: Evidence from a failed policy experiment☆

We investigate short and long-term effects of early childhood education using variation created by a policy experiment in British Columbia, Canada. Our findings imply being in kindergarten longer increases the probability of repeating the third grade, and decreases tenth grade math and reading scores. Effects are highest for low income students and males. Estimates suggest that more time in kindergarten may have a detrimental effect on future outcomes.

The Fires are not out yet: Higher Taxes and Young Adult Smoking

In recent policy discussions, the conventional wisdom is that adolescent smoking is substantially more taxor price-responsive than adult smoking. In a previous study, we used data from the first three waves of the National Education Longitudinal Study (NELS) to estimate the impact of taxes and prices on smoking initiation during adolescence (DeCicca, Kenkel, & Mathios, 2002). Contrary to the conventional wisdom, we found weak or nonexistent tax/price effects in our models of the onset of adolescent smoking between 1988 and 1992. In this study, we use data from the 2000 wave of NELS, when most respondents were about 26 years old. Although cigarette prices increased by almost 40% in real terms between 1992 and 2000, smoking prevalence among the NELS respondents also increased from 18% to 23%, about the same increase observed in other cohorts over these ages. Following the standard approach, we use the 2000 wave of NELS to estimate an empirical model of smoking participation at a point in time. However, we exploit the longitudinal nature of NELS to make several important extensions to previous research on the economics of smoking. First, because we know respondents’ previous states of residence, we can explore

Synthesizing Econometric Evidence: The Case of Demand Elasticity Estimates

Econometric estimates of the responsiveness of health-related consumer demand to higher prices are often key ingredients for risk policy analysis. We review the potential advantages and challenges of synthesizing econometric evidence on the price-responsiveness of consumer demand. We draw on examples of research on consumer demand for health-related goods, especially cigarettes. We argue that the overarching goal of research synthesis in this context is to provide policy-relevant evidence for broad-brush conclusions. We propose three main criteria to select among research synthesis methods. We discuss how in principle and in current practice synthesis of research on the price-elasticity of smoking meets our proposed criteria. Our analysis of current practice also contributes to academic research on the specific policy question of the effectiveness of higher cigarette prices to reduce smoking. Although we point out challenges and limitations, we believe more work on research synthesis in this area will be productive and important.