A Difference-in-Difference Model Econometric Model
weight rates, respectively. This result is driven by the low fraction of minorities Blacks or Hispanics in Massachusetts and the high fraction in Arizona. These two
groups tend to have low smoking rates but poor birth outcomes. Pretreatment smok- ing and low birth-weight rates were 15 and 7.7 percent in Illinois, respectively, and 20
and 8 percent respectively in Michigan.
How these four states spent the revenues generated from the tax hikes differed. Arizona, Illinois and Michigan raised cigarette taxes primarily to generate state tax
revenues to pay for nontobacco-related programs. More than 60 percent of the rev- enue collected from Arizona’s 1994 40-cent tax hike went toward medical care for
the uninsured and poor. The remainder of the revenue went toward antitobacco pro- grams and health research on prevention and treatment of tobacco-related illnesses
The Arizona Republican, February 16, 1995, p. A5. Illinois’ 1993 14-cent cigarette tax hike was passed to ease budgetary woes over funding for health services for the
poor St. Louis Post Dispatch, July 13, 1993, p. 1A. Michigan’s 1994 50-cent tax increase was passed to raise revenues to replace a portion of those lost when resi-
dents voted to eliminate the property tax New York Times, March 14, 1994, p. A15. Massachusetts’ 1992 25-cent state cigarette excise tax increase funded the
Massachusetts Tobacco Control Program that included activities such as antismok- ing media campaigns, enforcement of local antismoking laws, and educational
programs targeted primarily at teenagers, and pregnant women The Boston Globe, December 5, 1993, p. 4, and December 19, 1993, p. 50. Revenue from Massa-
chusetts’ tax hike also went to health programs unrelated to smoking The Boston Globe
, March 5, 1993, p. 10. In the next section, we describe a model that estimates the “treatment effect” asso-
ciated with each state’s major tax hike. In the case of Arizona, Illinois, and Michigan, the text above suggests that we can reasonably attribute all of the change in con-
sumption to the higher cigarette tax. In the case of Massachusetts, however, the treat- ment included a tax hike followed by a large antismoking media campaign. In a
companion paper, Lien 2001 examines in detail the impact of the Massachusetts antismoking campaign on tobacco use among pregnant women and finds no addi-
tional change in smoking after the start of the media campaign. This suggests that the drop in smoking we show for Massachusetts is driven by the tax change and not the
media campaign.