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How an anti-poverty policy can hurt poor people's health

If this guy got a bigger tax credit, would he buy more cigarettes?
If this guy got a bigger tax credit, would he buy more cigarettes?
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Research has already established that low-income Americans smoke more than the rest of the country. As of 2010, 33 percent of adults earning less than $15,000 annually smoked. Meanwhile, only around 1 in 10 adults earning $50,000 or more were smokers. So when the lower-income Americans get extra money, will they cut back on smoking?

Nope. At least, not according to a new working paper from the National Bureau of Economic Research. Researchers have found that when earned income tax credit benefits go up, they increase how much recipients smoke.

What they studied

Researchers from Cornell, Montana State University, and the Federal Reserve Board of Governors looked at these shifts in the earned income tax credit, a tax credit available to working, lower-income Americans, to see how additional EITC payouts affect smoking rates. Over the period studied — 1993 through 2007 — the maximum EITC payout grew considerably, from $1,678 to $3,650 (in 1997 dollars), giving the researchers a natural real-world experiment.

Combining this with tobacco use data from the Census Bureau, researchers tried to establish whether an increase in EITC caused recipients to smoke more.

What they found

Over the period studied, the researchers found that increases to the EITC did increase the amount that people smoked.

"We're using EITC as a mechanism through which lower-income people get more money," says Carly Urban, and assistant professor of economics at Montana State University. "And once we give them more money ... once they get his more money they're less likely to quit smoking and they smoke more."

Specifically, the researchers found that a 10 percent increase in EITC income caused smokers to consume 20 percent more cigarettes per day, or 3.37 more cigarettes. They spend an additional 6 cents out of every additional dollar of income on cigarettes, as well.

So while for the population at large, cigarettes may be what economists call an inferior good — that is, higher income means people buy less of them. But among low-to-moderate-income people, this means cigarettes may be what are called normal goods or even luxury goods — that is, increases in income boost spending on them.

What it means

Boosting the EITC as a means of combating poverty is one of those rare economic measures championed by politicians of both parties. And many economists believe that the EITC is effective at encouraging work and reducing inequality. That said, this study shows that even a policy many feel is effective can come with unintended consequences.

For this reason, the authors write, it might be a good idea to provide anti-smoking programs alongside anti-poverty programs.

"Our results provide a cautionary tale that at least in some circumstances, reducing socioeconomic disparities via income transfers might not go hand-in-hand with reducing health disparities," they write.

Then again, it's not like everyone who gets the EITC is a smoker. The results showed how cigarette consumption increased among smokers, which means those people's health might deteriorate. However, more income for non-smoking EITC recipients may help improve those people's health.

Either way, the point of the study wasn't just to study the effects of the EITC on smoking, says Urban. Rather, it was to better understand how lower-income Americans spend additional income. The real point, she says, is to see to what degree beneficiaries of this sort of program would rather spend extra money now than later.

"What we're trying to argue is that this is just coming through time preferences," she says. "And that's what the correlation is not picking up in previous literature."

But there are a few potential weaknesses to this study. One is that the researchers could not separate out the effects of the EITC from increased labor force participation. It's possible that working more in order to get the EITC may have somehow altered people's smoking habits, in either direction.

"Our results could therefore be interpreted as an estimate of the combination of the income effect and the labor force participation effect, to the extent that labor force participation affects cigarette demand," they write. A workplace smoking ban, they add, could bring down someone's smoking rate. Though hypothetically, a workplace where smoking is common could up someone's cigarette consumption.

In addition, these findings may clash with other research that has shown an increase in the EITC to curb maternal smoking and boost infant health.