Government: Save me from myself!


[I]f we were to think about raising taxes on cigarettes, we would typically say raising the price is bad for people who smoke, right? But there's a little bit more going on. Lots of people actually want to quit. So we might ask, is it possible to improve welfare by raising cigarette taxes? A pair of economists Jon Gruber and Sendhil Mullainathan found that excise taxes make potential smokers happier. The intuition is that because some people actually quit smoking when the price goes up, they are made better off. And so it is possible to improve welfare by raising a tax that encourages us to kick bad habits.

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