We provide new cross-country evidence on smoking persistence in Europe, which can be due to both true state dependence and individual unobserved heterogeneity. We distinguish between the two by using semi-parametric nonlinear panel data methods, applied to both the smoking participation and the cigarette consumption decision, which we allow to be correlated. We find that for both smoking decisions true state dependence is generally much smaller, but still important, when unobserved individual heterogeneity is accounted for, regardless of residential location. We uncover large differences in true state dependence across countries and relate them to discrepancies in regulations, social norms on and tolerance towards smoking, and awareness of its health risks.
Copyright © 2011 Elsevier B.V. All rights reserved.