Anti‐Corruption and Luxury Goods Consumption: Evidence From the Chinese Cigarette Market

ABSTRACT

This paper studies the impact of anti‐corruption efforts on luxury goods consumption and market structure. We propose a theory on the impact of corruption on luxury goods consumption, then 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 the sales of middle‐end cigarettes but decreased the sales of luxury cigarettes, in contrast to 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 our theoretical predictions.