Obesity and Smoking: can we Kill Two Birds with one Tax?

The demand for health turns 50: Reflections

The year 2022 is the 50th anniversary of the publication of my demand for health model in "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy 80(2): 223-255, and in The Demands for Health: A Theoretical and Empirical Investigation, NBER Occasional Paper 119 New York: Columbia University Press for the NBER. To mark that occasion, this editorial focuses on the history of the model and its impacts on the field of health economics.

Optimal design of sin taxes in the presence of nontaxable sin goods

Sin good consumption entails health damage, which is in general not fully perceived by individuals, what results in its overconsumption. One way to tackle this problem is to tax these unhealthy goods. However, not all the individual choices that affect health status can be easily observed and effectively taxed by the government. This paper considers a setting where individuals can consume two types of sin goods that differ in their observability (taxability) by the government. As a benchmark, the first-best taxes for the observable and non-observable sin good are derived, considering homogeneous individuals. In the second-best setting, where observability on sin good consumption is limited, the rule for the taxable sin good is shown to depend on the degree of complementarity or substitutability with the unobservable sin good. Finally, redistributional considerations are incorporated by extending the analysis to a setting where individuals differ in their wealth and in their degree of misperception of the health damage caused by sin good consumption. Policy implications are illustrated considering physical inactivity and illicit drugs as examples of non-taxable sin goods, while alcohol, tobacco, fat and sugar account for the taxable sin goods.

The effect of tobacco policies on youth physical activity

Our research examines the effects of tobacco policies on teenagers' physical activity. Smoking and physical activity are both strategies for weight management, and exercise may be a way to reduce some of the ill effects of smoking. These different links suggest that cigarette taxes could either increase or decrease physical activity. We explore this relationship using repeated cross-sectional 1991-2017 data from the national and state Youth Risk Behavior Surveillance System (YRBSS), combined with state-level policies and controls. Our smoking participation results confirm past work; cigarette taxes have a negative effect on smoking that has waned in recent years. The estimated effects of cigarette taxes on physical activity echo those of smoking; cigarette taxes decrease physical activity and, like smoking, these effects have waned recently. However, one likely avenue - sports participation - is unaffected. These results suggest that increased cigarette taxes lead to modest declines in teen physical activity, a finding consistent with youth using exercise to compensate for the health effects of smoking.

Smoking kills: An economic theory of addiction, health deficit accumulation, and longevity

In this paper I unify the economic theories of addiction and health deficit accumulation and develop a life cycle theory in which individuals take into account the fact that the consumption of addictive goods reduces their health and longevity. I distinguish two types of addiction: sophisticated and naive. Individuals with sophisticated addiction perfectly control their addiction. Individuals with naive addiction, though otherwise rational and forward looking, fail to fully understand how their addiction develops. I argue that the life cycle consumption pattern predicted for naive addiction is more suitable for motivating empirically observable patterns of addictive goods consumption. I take the case of smoking as unhealthy behavior, calibrate the model with U.S. data, and apply it in order to investigate the life cycle patterns of smoking and quitting smoking and the socioeconomic gradients of unhealthy consumption and longevity.

Killing two birds with one stone? Association between tobacco and alcohol consumption

OBJECTIVES

Tobacco and excessive alcohol consumption are addictive behaviours, listed among the 10 leading risk factors that cause death and disability in the world, and health consequences are greater if their consumption is combined. There is sparse empirical evidence on the variables that influence the simultaneous consumption of tobacco and alcohol. This study aims to identify the variables that influence the joint decision to consume alcohol and tobacco, and that encourage drinkers to smoke.

STUDY DESIGN

The sample includes Portuguese adults, mainly aged 50 years and over, extracted from the Survey of Health, Ageing and Retirement in Europe, covering the year 2011.

METHODS

We propose a bivariate probit model, which allows us to model simultaneously the two goods, accounting for potential correlation between smoking and drinking decisions.

RESULTS

We identified the variables that influence joint consumption, and tobacco consumption among drinkers, which could be used as policy instruments to develop concerted policies. Prevention policies should focus on males, younger and more educated individuals, as well as on individuals with unhealthy eating habits, because these variables were statistically significant and increased joint consumption. In addition, these characteristics also should be regarded if we want to control tobacco consumption among alcohol consumers.

CONCLUSIONS

The analysis of the interdependence between alcohol and tobacco use presented in this article may allow reducing their consumption with a common intervention, enabling policymakers to 'kill two birds with one stone' and to achieve extended health and economic gains.