Use the cigsales data set. This data set comes from David Simon and is part of a preliminary analysis in an examination of how childhood exposure to cigarette smoke affects various childhood outcomes...

Use the cigsales data set. This data set comes from David Simon and is part of a preliminary analysis in an examination of how childhood exposure to cigarette smoke affects various childhood outcomes (Simon 2016).

a. Estimate the effects of the cigarette-tax-rate-per-pack, in 2009 prices, (tax09), on cigarette-sales-per-capita (cigsalepc). Use state and year fixed effects. You may need to use fixed effects for either state or year and just a set of dummy variables for the other. Also, use robust standard errors clustered at the state level, and weight the model by the 2000 state population (pop2000). b. Estimate the same model, but add control variables for the unemployment rate (urate), the beer tax (beertax), and whether smoking is allowed in bars (bar) and restaurants (restaurant). And, add the variables for the state trends (statetrend1–statetrend51). Note how the estimated effect of the tax rate is affected compared to #3a. c. From #3b, what is the interpretation of the coefficient estimate on the tax rate, in terms of what observations are compared to what observations? d. What underlying condition is needed for this to be a valid model to estimate the causal effects of the cigarette tax on cigarette sales?