Spillovers from the beer market to U.S. cigarette demand

We study the cross-effects of the beer market on U.S. cigarette demand. The extant literature has mainly focused on the cigarettes and (hard) liquor relationship with inconclusive findings on substitution or complementarity. Our results show cigarettes and beer serve as complements as supported through beer price (tax) and non-price (regulation) channels. We also find negative and elastic cigarette demand and positive income elasticity. Border effects, both intranational and international, as well as habit-formation effects are significant, while the effects of cigarette advertising and income inequality are insignificant. Policy implications are discussed.