Smoking initiation and the iron law of demand

We show, with three longitudinal datasets, that cigarette taxes and prices affect smoking initiation decisions. Evidence from longitudinal studies is mixed but generally find that initiation does not vary with price or tax. We show that the lack of statistical significance partly results because of limited policy variation in the time periods studied, truncated behavioral windows, or mis-assignment of price and tax rates in retrospective data (which occurs when one has no information about respondents’ prior state or region of residence). Our findings highlight issues relevant to initiation behavior generally, particularly those for which individuals’ responses to policy changes may be noisy or small in magnitude.