Anti-corruption and cigarette consumption: Evidence from China

This study proposes a theory on the impact of corruption on luxury goods consumption. We test the theory and evaluate the effectiveness of China's anti-corruption campaign in 2012 by conducting a difference-in-differences analysis of product-city-level cigarette consumption from 2007 to 2014. We find that the campaign increased sales of middle-end cigarettes but decreased sales of luxury cigarettes, in contrast with the trend for low-end cigarettes. This substitution pattern may be attributable to a decrease in public spending on luxury goods. This substitution pattern is moderated by officials' wages and anti-corruption efforts, which supports the theoretical predictions. JEL Classification: H23, Q52, R11