Testing for the Rational Addiction Hypothesis in Turkish Cigarette and Alcohol Consumption
Author/s: Raif Cergibozan
Year: 2018 Vol: 5 Number: 1
In this study, the relationship between simultaneous and intertemporal cigarette and alcohol consumption for Turkey is analyzed using GMM in the context of the Rational Addiction Model for the 1994-2016 period. Firstly, the demand of alcohol and that of cigarettes are estimated separately in the study. According to the results of the analysis, alcohol and cigarette demand are both in accordance with the Rational Addiction Model. The price elasticity of demand for both substances is negative. It is also found that the demand for alcohol is more elasticated than that for cigarettes. In addition, the cross-price elasticities are not statistically significant. Based on the results of this study, it is suggested that public policy combating these addictive substances be determined separately for these goods. Based on model results, the optimal strategy for increasing the income of the government should be to increase the price of cigarettes prices rather than of alcohol. Finally, no evidence is found indicating that the previous consumption of one of these substances influences the current consumption of the other good.