Figure 1. California Personal Health Care Expenditures and Difference in Cigarette Consumption between Control States and California.

Endogenous variables per capita California personal health care expenditures h_CA,t (top graph), and difference in per capita cigarette consumption between the control states and California, (s_control,t − s_CA,t) (bottom graph), are generated from the estimated model equations and observed exogenous variables using dynamic predictions, and follow the observed values (dots) of the dependent variables closely. The dotted lines are the predicted long-run cointegrating relationships (Equations 1 and 3) and the solid lines add the short-run fluctuations from the ECM (Equations 2 and 4) to the long-run predictions.