Canadian Cancer Society,
“Compilation of Selected Evidence Regarding the Impact of Higher Tobacco Prices
on Tobacco Use; A Submission Prepared for the House of Commons Standing
Committee on Finance”
Société
canadienne du cancer, « Compilation de divers documents traitant des
effets de l’augmentation des prix des produits de tabac sur l’usage du tabac;
Mémoire présenté au Comité permanent des finances, Chambre des communes »
September 2001
septembre
2001
Summary/Sommaire
Tab/onglet
1.
Introduction
2.
Summary/Sommaire
3.
Namgyal Goff, “Summary
Listing of Estimates of Price Elasticity of Demand” September 2000.
4.
By and large, demand for
tobacco responds to price changes like any other commodity –when prices rise,
consumption falls. Younger smokers are
the most price-sensitive, because they typically have little money. Raising prices by raising taxes can prevent
children and youth from smoking, or reduce the amount they smoke. One analysis of Canadian data estimated that
a 10 per cent increase in the price of cigarettes over and above inflation
would likely result in a 17 per cent drop in cigarettes consumed per capita by
15-19-year-olds.
Thus, tax cuts are a major step backward for public health. To reduce smoking, federal and provincial
taxes should be raised to their former peak levels, and increased regularly at
or above the inflation rate. (p.4)
Addiction Research Foundation. “Preventing
Smoking: Tobacco Control Policies. Best Advice From the Research Foundation”
July 1995.
5.
The question of whether
tobacco price increases affect younger people more than adults has not been
addressed in many studies. In order to
gain some insight into the price sensitivity of younger Canadians, a simple
analysis was carried out to determine how the proportion of smokers among
teenagers and adults is affected by the real price of tobacco. In all cases, the results showed that
younger Canadians are, indeed, more sensitive to price changes than adults. That is, recent tax increases have led to a
reduction in the number of teenagers who start to smoke and this will have a
long-term effect on total tobacco consumption. (p.iv).
. . .
Conclusion
. . . On balance, federal
tax increases since 1985 have resulted in a net decline in overall tobacco
consumption in Canada. (p.vi)
Canadian Department of
Finance. “Tobacco Taxes and
Consumption” Ottawa. Department of
Finance. June 1993.
6.
The Committee recommends such further increases
to the excise tax on cigarettes as circumstances related to smuggling will
permit. An increase of $1 per carton
(0.5 cents per cigarette) across all regions of Canada would increase
government revenues by $150 million annually.
Such a tax increase would likely reduce tobacco consumption. Recent surveys show that prevalence of
smoking has increased in Canada.
In
addition, the Committee recommends that the government, subject to smuggling
considerations, consider tax measures to equalize federal tobacco taxes as much
as possible across all provinces and territories. Under the current regime, the tax level varies from $6.45 per 200
cigarettes to $10.85 per 200 cigarettes, depending upon the province of
residence.
Subject
again to smuggling considerations, the government should also consider
introducing tax increases on “roll-your-own” tobacco (fine cut and tobacco
sticks for example) to a level closer to the tax on manufactured cigarettes.
Finally,
the Committee recommends that the surtax on the tobacco industry and the export
tax on tobacco products be maintained. (p.21)
Canadian
House of Commons Standing Committee on Finance. “The Next Steps to Fiscal
Health After a Year of Historic Progress: Building the 1996 Budget through
Consultation” Twenty-Fourth Report of the Standing Committee on Finance. January 1996.
7.
In its last two reports, the Committee
recommended tax increases on tobacco products as quickly as circumstances
related to the containment of smuggling would permit. The federal excise tax on cigarettes products was increased in
February 1995 and again on November 28 of this year.
RECOMMENDATION
The
Committee welcomes these increases and still recommends increasing further the
excise tax on cigarettes by as much as circumstances related to smuggling
permit. An increase of $1 per carton
(0.5 cents per cigarette) across all regions of Canada would increase annual
government revenues by $150 million.
. .
.
As
it did last year, the Committee still recommends that the Government, subject
to smuggling considerations, consider tax measures to equalize federal tobacco
taxes as much as possible across all provinces and territories. Under the current regime, the tax level
varies from $7.15 per 200 cigarettes to $10.85 per 200 cigarettes, depending
upon the province of residence.
As
recommended last year, the Committee suggests that the Government consider
increasing taxes on “roll-your-own” tobacco to a level closer to the tax on
manufactured cigarettes.
. .
.
Finally,
the Committee recommends that the current manufacturers surtax, scheduled to
end in March 1997, be extended indefinitely.
Increasing
the taxes on tobacco products, while a revenue measure, is primarily to curb
smoking, especially among the young for whom price is often the most effective
deterrent. (p.27, ch. 3 of internet version)
Canadian House of Commons Standing Committee on Finance. “The 1997
Budget and Beyond: Finish the Job” Fifth Report of the Standing Committee on
Finance. December 1996.
http://www.parl.gc.ca/committees352/fine/reports/05_1996-12/fine-05-cov-e.html
8.
In the last three reports, the Committee
recommended tax increases on tobacco products as much as possible without
increasing smuggling. The last time the
federal excise tax on cigarettes was increased was on November 28, 1996.
Almost
29% of young Canadians aged between 15 and 24 are smokers.
Increasing
taxes on tobacco products is designed primarily to curb smoking, especially
among the young, for whom price is often the most effective deterrent.
RECOMMENDATION
The
Committee endorses the government’s decision to double the resources of the Tobacco
Demand Reduction Strategy. The
Committee further recommends that the excise tax on cigarettes be increased.
(p.17, c.2 of internet version)
Canadian House of Commons Standing Committee on Finance. “Keeping the
Balance: Security and Opportunity for Canadians” Report of the Standing
Committee on Finance. December 1997. http://www.parl.gc.ca/InfoComDoc/36/1/FINA/Studies/Reports/FINARP02-E.htm
9.
Mesures en matière de lutte contre le tabagisme au niveau national
-
Que la taxation soit retenue comme une stratégie centrale en vue du
contrôle du tabagisme.
-
Qu’une proportion des revenus engendrés par le prélèvement de cette
taxe soit précisée et affectée au financement des activités de prévention du
cancer.
-
Que des mesures supplémentaires soient prévues pour contrer les
activités contrebande et que des représentations auprès des provinces et des
États voisins soient faites afin que des mesures semblables puissent être adoptées.
(p.73)
Comité consultatif sur le cancer. « Programme québécois de lutte
contre le cancer; Pour lutter efficacement contre le cancer, formons
équipe » Octobre 1997.
10.
Increasing the price of
cigarettes is essential to reducing and preventing smoking among young people,
and is supported by several decades of research. Young people are much more price-sensitive than adults, that is,
for a given price increase, they are much more likely to quit or not take up
smoking, or to reduce their consumption.
(p.15)
Expert Panel on the
Renewal of the Ontario Tobacco Strategy.
“Actions Will Speak Louder than Words: Getting Serious about Tobacco
Control in Ontario. A Report to the
Minister of Health from her Expert Panel on the Renewal of the Ontario Tobacco
Strategy” February 1999.
11.
“The Government of Canada
and public health advocates believe that this rise (in youth smoking rates) is
due, in large part, to the roll-back on cigarette taxes which was forced on us
by the rise in smuggling in the 1990’s.” - Health Minister Allan Rock
. . .
Tax increases on tobacco
products are a key part of the Government of Canada’s overall strategy to
reduce tobacco consumption. It is
widely recognized that raising the price of tobacco products contributes to
reducing demand, especially among young people. (p.10)
Health Canada, Health
Promotions and Programs Branch, Bureau of Tobacco Control. “Report on Tobacco Control” Ottawa,
Ontario. January 2000.
12.
The Committee considers that what is required
is a National Anti-Smoking Strategy which includes the following: --
. .
.
Annual
increases in tobacco taxes in excess of cost of living increases. (p.2 of ch.8
of internet version) (p.2 of internet version)
. .
.
Action
required:
It
is the view of the Committee that tobacco taxes should be increased by 5% per
annum in excess of inflation in each of the budgets from December 1999 to
December 2005 when the impact of increased tobacco taxes should be reviewed.
(p.15 of ch.8 of internet version)
Ireland
Oireachtas [Parliament], Joint Committee on Health and Children, “A National
Anti-Smoking Strategy: A Report on Health and Smoking” November 1999. http://www.irlgov.ie/committees-99/c-health/reports.htm Accessed March 27, 2001.
13.
Conclusions and Recommendations
. .
.
Evidence
from Canada, New Zealand and the United Kingdom lead the Committee to the
conclusion that pricing policy is perhaps the single most important element of
an overall comprehensive strategy to reduce tobacco use, and particularly to
reduce use among children and youths.
This evidence leads the Committee to make the following five
recommendations for changing how tobacco products are taxed in the United
States:
1. Tobacco tax policies at the federal and state levels should be linked to
the national objectives for reducing tobacco use. In other words, government policymakers should use tobacco taxes
as an intervention to accomplish these health goals. (p.192)
2. The excise tax on cigarettes should be increased to a level comparable
with that in other major industrialized countries. A reasonable target would be to increase the federal cigarette
tax by $2 by 1995. . . .
3. All tobacco products should be taxed on an equivalent basis. For example, when cigarette taxes are
increased, taxes on non-cigarette tobacco products should also be increased on
an equivalent basis to discourage substitution of one harmful form of tobacco
for another (such as smokeless tobacco).
4. The real value of tobacco taxes should be maintained to account for
inflation over time. Optimally, tobacco
tax policy should take into consideration the affordability of tobacco products
to prevent tobacco from becoming more affordable.
5.
Tobacco products in U.S. military stores should
be priced at the same rate that exists in the surrounding community. (p.193)
Lynch, B.S., Bonnie,
R.J., eds., Committee on Preventing Nicotine Addiction in Children and Youths,
Institute of Medicine [U.S.] Growing
Up Tobacco Free: Preventing Nicotine Addiction in Children and Youths.
(Washington, D.C.: National Academy Press, 1994).
14.
Expert Panel Conclusions
1. Increases in Tobacco
Excise Taxes Will Decrease Tobacco Consumption by Youth and Adults.
As with almost all other
products, the demand for cigarettes decreases as price is increased. A variety of studies have examined the
relationship of cigarette prices to consumption and have documented an inverse
relationship. The price elasticity of
demand for cigarettes has usually been found to be in the range of 0.3 to 0.5
(minus signs deleted here and throughout this report). Defined simply, price elasticity refers to
the percentage change in the quantity of cigarettes demanded divided by the
percentage change in price. For
example, a price elasticity of 0.4 indicates that, when the price of cigarettes
is increased by 10 percent, the quantity of cigarettes demanded will fall by
about 4 percent (again, recall that the minus sign is being suppressed here).
(p.6)
When the price of
cigarettes increases, decreases in consumption occur, both because some people
choose not to smoke and because some smokers choose to smoke fewer
cigarettes. Approximately two-thirds of
the decrease in consumption is estimated to be the result of people choosing
not to smoke at all. This refers both
to current smokers who choose to stop and to non-smokers (especially children)
who choose not to start smoking. The
Coalition on Smoking OR Health has calculated that an increase of $2 per pack
in cigarette taxes, tied thereafter to inflation, will result in 7.6 million
fewer smokers; this, in turn, ultimately will prevent 1.9 million premature
deaths. (p.7)
2. An Excise Tax Increase
Reduces Tobacco Consumption by Children and Teenagers at Least as Much as It
Reduces Consumption by Adults.
. . .
3. Raising the Excise Tax
on Cigarettes Deters Smoking in Lower Income Populations, Who Currently Are
Most Harmed by Smoking.
. . .
4. The Price Elasticity
of Demand for Large Price Increases is Expected to Be at Least as Large as for
Small Price Increases.
. . .
5. To Maintain the Public
Health Effect of the Tobacco Excise Tax, It Must Be Increased Regularly.
. . .
6. A Substantial Increase
in Tobacco Excise Taxes May Be the Single Most Effective Measure for Decreasing
Tobacco Consumption”
Manley M., Glynn T.J.,
Shopland, D. “The Impact of Cigarette Excise Taxes on Smoking Among Children
and Adults, Summary Report of a National Cancer Institute Expert Panel”
National Cancer Institute [U.S.]. August 1993.
15. In recent years, there has been an increasing trend at the state level
to impose taxes on tobacco products other than cigarettes. In 1970, 21 states taxed cigars and the
number remained virtually constant up until 1995 (22 states). However, by 1990, the number of states rose
to 33 and by 1996 was 41 states. (p.228)
National Cancer Institute
[U.S.], Cigars: Health Effects and Trends. Smoking and Tobacco Control
Monograph 9, 1998.
16.
RAISE PRICES TO REDUCE
USE
The price of tobacco
products must be increased substantially.
Raising the prices of
tobacco products is a proven way of reducing tobacco use in the short and
medium terms. Price hikes both encourage cessation and thwart initiation. Higher prices have the added benefit of
reducing use among people not yet addicted to nicotine, including young people,
whose level of tobacco consumption may be more sensitive to price. (p.4)
. . .
The single most direct
and reliable method for reducing consumption is to increase the price of
tobacco products, thus encouraging the cessation and reducing the level of
initiation of tobacco use. (p.26)
National Cancer Policy
Board [U.S.] Taking Action to Reduce Tobacco Use. (Washington, D.C.:
National Academy Press, 1998).
17.
Given the proven efficacy of taxation as a
tobacco control strategy, the Task Force is very concerned about the recent
reductions in tobaccco taxation at both the federal and provincial levels. . . . (pp.12-13)
The
Task Force is especially concerned about the impact of the recent tax policy
changes on children and youth, whose buying habits are far more price-senstive
than adult. . . . (p.13)
Decreases
in the price of tobacco products may also deter adult smokers from
quitting. In particular, the recent tax
reductions may have a significant impact on the cessation efforts of low-income
smokers, who are more sensitive to cost than the general population. The most reliable projections of the impact
of tobacco tax reductions point to an increase in the proportion of smokers in
the population.
To
minimize increases in tobacco-related cancer mortality arising from the
reductions on tobacco taxes, the Task Force strongly urges the Ontario
government to work with its federal and provincial counterparts to restore
tobacco taxation rates to their former peak levels. Subsequent tobacco tax increases should be set above the rate of
inflation. (p.13)
Ontario Task Force on the
Primary Prevention of Cancer, “Recommendations for the Primary Prevention of
Cancer; Report of the Ontario Task Force on the Primary Prevention of Cancer”
March 1995 [Report to Ontario Minister of Health].
18.
New Zealand studies all
show that price rises decrease sales, the effect of a 10 percent price rise
being to lower sales by 0.7 to 5 percent, and in New Zealand supermarkets by 4
percent, falling within a week to the new level in 60 supermarkets monitored
weekly on electronic checkout data. In
the United Kingdom tobacco tax particularly reduces smoking among the lowest
social classes and among women. (p.3)
Public Health Commission
[New Zealand]. Tobacco Taxation as a Health Issue: Discussion Document.
Wellington, New Zealand. March 1995.
19.
Tobacco use is strongly
influenced by the cost of the product.
This is particularly true among young people. Typically teenagers do not have much money, so the higher the price,
the less tobacco they can afford. Also,
because many teenagers are only experimenting with tobacco and are not yet
addicted, they can easily cut down if the price rises. Adult smoking rates change with price too,
but usually to a lesser extent than rates for young people. (p.10)
. . .
Recommendations (p.12)
. . .
FEDERAL GOVERNMENT
1. Put the taxes back on
cigarettes.
Price is a very important
determinant of smoking behaviour, especially among young people. Raising taxes is the best way of using
pricing to discourage tobacco use.
(p.14)
Schabas, R. “Tobacco. Sounding the Alarm.
Report of the Chief Medical Officer of Health.” Ontario Ministry of
Health. 1996.
20.
Conclusions
3.9
Price, advertising and promotion influence cigarette consumption.
. .
.
Recommendations
3.11
The real price of tobacco products should continue to be increased each year to
reduce consumption. (p.31)
Scientific Committee on
Tobacco and Health [U.K.] Report of the Scientific Committee on Tobacco and
Health. (London: H.M.S.O., February 1998).
21.
Recommendation 4:
Increases in Tobacco
Taxation
It is recommended that
the Government of Ontario take action to ensure that the retail price of
cigarettes be doubled within a 12-month period by means of three phased
increases in basic taxation on tobacco products, and ensure through taxation
that the price of cigarettes keeps up with inflation thereafter.
It has been well
documented that cigarette consumption goes down when the price of cigarettes
relative to inflation goes up, and vice versa. (p.13)
Task Force on Smoking. “Smoking and Health in
Ontario: A Need for Balance. Report of the Task Force on Smoking
Submitted to the Ontario Council of Health.”
May 1982.
22.
While success in reducing
smoking depends on a range of inter-related factors, raising the price of
tobacco is one of the most effective ways of reducing consumption. Studies show that a price increase of 10 per
cent generally leads to a drop of between 3 per cent and 6 per cent in tobacco
consumption. Since levels of taxation can
be used to raise prices, or to keep them high, taxation is an important part of
any effective strategy to reduce smoking.
(p.2)
United Kingdom Department
of Health. “The Importance of Price in Reducing Tobacco Consumption” London,
United Kingdom. September 1994.
23.
Tax
Why
action is needed
2.12
Research shows that the demand for tobacco products is related to their
price. As price rises, demand
falls. So high tax levels are one
important means of reducing tobacco consumption. High tobacco prices are also a deterrent to children tempted to
take up smoking. The real price of
tobacco – that is, after allowing for inflation – has increased significantly
in recent decades. But people’s real
incomes have also risen.
2.13
When people’s incomes increase faster than the price of cigarettes, people can
afford to buy more cigarettes – that is, the ‘affordability’ of cigarettes goes
up. This can reduce the incentive to
give up smoking presented by rising tobacco tax. (p.16)
United Kingdom Department of
Health, “Smoking Kills: A White Paper on Tobacco” December, 1998.
24.
Considerable research
supports the proposition that increasing the price of cigarettes would be the
most effective way to reduce their use. . . . A 63-cent increase in price would
lead to significant reductions in smoking; a larger price increase would be
even more effective. (p.3)
. . .
Most analysts agree that
higher prices are the single most effective way to discourage consumption of
cigarettes. (p.5).
U.S. Congressional Budget
Office. “The Proposed Tobacco
Settlement: Issues from a Federal
Perspective” Washington, D.C., April
1998.
25.
Studies demonstrate that
increases in the price of cigarettes decrease smoking, particularly by
adolescents. It has been estimated that
an additional 100,000 or more persons will live to age 65 as a result of the
price increases induced by the 1983 doubling of the Federal excise tax on
cigarettes. (p.27)
U.S. Department of Health
and Human Service. Reducing the Health Consequences of Smoking: 25 Years of
Progress. A Report of the Surgeon General. U.S. Department of Health and
Human Service, Public Health Service, Centres for Disease Control, Center for
Chronic Disease Prevention and Health Promotion, Office on Smoking and Health.
Rockville, MD. 1989. DHHS Publication
No. (CDC) 89-8411.
26.
Conclusions
. . .
7. Increases in the price
of cigarettes, which are a price-elastic commodity, cause decreases in smoking,
particularly among adolescents. Excise
taxes may thus be viewed as a public health measure to diminish morbidity and
mortality, although the precise impact of taxes on smoking will be influenced
by local economic factors. (p.136)
U.S. Department of Health
and Human Service. Smoking and Health in the Americas. Atlanta, Georgia: U.S. Department of Health and
Human Services, Public Health Service, Centers for Disease Control, National
Center for Chronic Disease Prevention and Health Promotion, Office on Smoking
and Health, 1992. Publication No. (CDC) 92-8419.
27.
Conclusions
. . .
Econometric and other
studies indicate that increases in the real price of cigarettes significantly
reduce cigarette smoking; young people are at least as responsive as adults to
such price changes. Maintaining higher
real prices of cigarettes depends on further tax increases to offset the
effects of inflation. (p.275)
U.S. Department of Health
and Human Service. Preventing Tobacco Use Among Young People: A Report of
the Surgeon General. Atlanta,
Georgia: U.S. Department of Health and Human Services, Centers for Disease
Control and Prevention, National Center for Chronic Disease Prevention and
Health Promotion, Office on Smoking and Health, 1994.
28.
Numerous efforts have
been made to reduce the use of cigarettes through excise and sales taxes. Because these taxes increase the price of
cigarettes, higher tax rates generally curb the demand for cigarettes, and
ultimately, tobacco consumption.
. . .
The actual effects of
excise tax initiatives on members of racial/ethnic minority groups are
difficult to ascertain. Nevertheless,
reductions in the consumption of tobacco products resulting from increases in
excise taxes should ultimately benefit members of U.S. racial/ethnic groups by
lowering their prevalence of cigarette smoking and by limiting or lowering
their exposure to ETS. (p.292)
U.S. Department of Health
and Human Service. Tobacco Use Among
U.S. Racial/Ethnic Minority Groups – African Americans, American Indians and
Alaska Natives, Asian Americans and Pacific Islanders, Hispanics. A Report of the Surgeon General. Atlanta, Georgia: US. Department of Health and Human Services,
Centers for Disease Control and Prevention, National Center for Chronic Disease
Prevention and Health Promotion, Office on Smoking and Health, 1998.
29.
A few general conclusions
can be drawn from these studies of the effects of cigarette prices on
smoking. First, increases in cigarette
prices lead to significant reductions in cigarette smoking; most studies, using
a wide variety of data and methods with various strengths and weakness, predict
that a 10-percent increase in price will reduce overall cigarette consumption
by 3-5 percent. Second, the effects of
increases in cigarette prices are not limited to reductions in average
cigarette consumption among smokers but include significant reductions in smoking
prevalence. These effects on smoking
prevalence constitute both an increase in smoking cessation among smokers and a
reduction in smoking initiation among potential young smokers. Third, although evidence concerning the
effects of prices on adolescent smoking is mixed, the majority of the evidence
from recent studies indicates that adolescents and young adults are
significantly more responsive than adults to changes in cigarette prices. Most recent studies found that adolescents
and young adults were two to three times more sensitive than adults to
price. Ongoing research, particularly
that based on longitudinal data, will help clarify this issue. Finally, the limited number of studies of
smokeless tobacco use suggest that increases in smokeless tobacco price would
reduce the prevalence of smokeless tobacco use. (p.337)
. . .
1. The price
of tobacco has an important influence on the demand for tobacco products,
particularly among young people.
2. Substantial increases in the excise taxes on cigarettes would
have a considerable impact on the prevalence of smoking and, in the long term,
reduce the adverse health effects caused by tobacco. (p. 359)
U.S. Department of Health
and Human Services. Reducing Tobacco
Use: A Report of the Surgeon General.
Atlanta, Georgia: U.S. Department of Health and Human Services, Centers
for Disease Control and Prevention, National Center for Chronic Disease
Prevention and Health Promotion, Office on Smoking and Health, 2000.
30.
Cigarette price is a
major determinant of cigarette consumption and one that can be influenced by
tobacco tax policy. (p.594)
. . .
The effect of pricing on
cigarette consumption is likely to be greatest among those with fewer economic
resources, including adolescents and persons with low income. Several studies have found that cigarette
pricing has larger effects among young people than among adults and that
pricing changes are more likely to affect adolescents’ decisions to smoke than
the amount they smoke. Other
investigators have reported that smokers of low SES [socioeconomic status] are
especially responsive to price changes. (pp.594-595)
U.S. Department of Health
and Human Services. Women and Smoking: A Report of the Surgeon General.
Atlanta, Georgia: U.S. Department of Health and Human Services, Centers for
Disease Control and Prevention, National Center for Chronic Disease Prevention
and Health Promotion, Office on Smoking and Health, 2001.
31.
Estimates of the
elasticity of demand for cigarettes, a measure of price sensitivity, are
commonly reported to be in the vicinity of –0.4. A demand elasticity of –0.4 indicates that a 1 percent increase
in the price of cigarettes will be associated with at 0.4 percent decrease in
the number of cigarettes sold. The –0.4
adult demand elasticity estimate is consistent with estimates derived from a
variety of studies. Studies of per
capita consumption report elasticity estimates in the range of –0.2 to
–0.8. This figure also represents the
midpoint of the consensus range of elasticity estimates arrived at by a
gathering of economists and other experts convened by the National Cancer
Institute (-0.3 to –0.5). Other studies
allow for the possibility that smokers consider the future costs of developing
a smoking habit when making current decisions to buy cigarettes. Studies based on this approach generally
imply price elasticities that are higher over a relatively long period because
consumer response to a permanent increase in the price of cigarettes grows over
time, until it reaches a final equilibrium.
These models, nonetheless, still find that demand is inelastic even in
the long run. Applying this future-cost
approach to state data, one study reports a short run price elasticity of –0.45
and a long run estimate of -0.75.
(p.4-5)
U.S. Federal Trade
Commission, Bureaus of Economics, Competition, and Consumer Protection. “Competition and the Financial Impact of the
Proposed Tobacco Industry Settlement”
Requested by the Congressional Task Force on Tobacco and Health. September 1997.
32.
Our assessment of the
economic literature supports the prediction that increasing the federal excise
tax on cigarettes should reduce the number of teenage smokers
significantly. Although the size of the
reduction is uncertain, we believe that a reasonable estimate can be made. If, for example, excise taxes were raised by
about 20 cents per pack in 1989, all other factors remaining unchanged, the
likely result would be over 500,000 fewer smokers. This would lead, according to one estimate, to about 125,000 fewer
premature deaths. (p.1)
U.S. General Accounting
Office. “Teenage Smoking: Higher Excise Tax Should Significantly
Reduce the Number of Smokers. Report to
the Honorable Michael A. Andrews, House of Representatives” Washington,
D.C. 1989. Publication No. GAO/HRD-89-119.
33.
In reality, the most
effective way to deter children from taking up smoking is to increase taxes on
tobacco. High prices prevent some children and adolescents from starting and
encourage those who already smoke to reduce their consumption.(p.5)
. . .
Evidence from countries
of all income levels shows that price increases on cigarettes are highly
effective in reducing demand. Higher
taxes induce some smokers to quit and prevent other individuals from starting. They also reduce the number of ex-smokers
who return to cigarettes and reduce consumption among continuing smokers. On average, a price rise of 10 percent on a
pack of cigarettes would be expected to reduce demand for cigarettes about 4
percent in high-income countries and by about 8 percent in low-and middle-
income countries, where lower incomes tend to make people more responsive to
price changes. Children and adolescents
are more responsive to price rises than older adults, so this intervention
would have a significant impact on them.
(p.6)
World Bank. Curbing the Epidemic: Governments and the
Economics of Tobacco Control.
(Washington, D.C.: World Bank, 1999).
34.
Financial measures to
discourage tobacco consumption
A number of studies in
several countries have shown that, for every 10% increase in the price of
tobacco products, consumption can be expected to decline by 2-8%. Price has been found to have an even
stronger effect in reducing tobacco consumption among two key target groups-
adolescents and people of lower socio-economic status. While the size of the effect may vary, it
has been clearly demonstrated that raising the price of tobacco products does
reduce tobacco consumption. Therefore,
regular increases in the price of tobacco products are of critical importance
in a comprehensive tobacco control strategy.
(p.55)
World Health
Organization, Tobacco or Health: A
Global Status Report. (Geneva:
World Health Organization, 1997).
35. Tobacco Taxation
All African countries should
examine the pricing of tobacco products to determine whether the price of
tobacco has kept pace with the rate of inflation and, if not, that the tax on
tobacco is adjusted to reduce affordability of tobacco products. (p.176)
All-Africa Conference on Tobacco
or Health, “Final Conference Recommendations for Tobacco Control in Africa” In:
Yach, D., Harrison, S., eds., Proceedings of the All-Africa Conference on
Tobacco or Health, Harare, Zimbabwe, 14-17 November 1993.
36.
Ten strategies for a smoke-free Europe
. .
.
7
Institute progressive financial disincentives (p.14)
First European Conference on
Tobacco Policy, “It Can Be Done: A Smoke-free Europe; Report of the First
European Conference on Tobacco Policy” Madrid, Spain, 7-11 November 1988. WHO Regional Publications, European Series,
No. 30.
37.
Conclusions of the
conference (p.iii)
. . .
Increase the Federal
excise tax on cigarettes by two dollars per pack
. . .
. . . it was estimated
that a $2 tax increase will save 2 million lives over time. The tax would deter youth from starting to
smoke, perhaps more effectively than any other single health promotion
tactic. Adults would also have an
increased incentive to quit smoking. (p.iv)
Houston, T., ed. “Tobacco Use: An American Crisis. Final
Conference Report and Recommendations From America’s Health Community” Washington, D.C., 9-12 January 1993
(Chicago: American Medical Association, 1993).
38.
In order to help achieve its goal of
eliminating lung cancer, the IASLC: 1. Requests
governments to: . . . 4) Increase taxes
on tobacco in order to prevent its use.
Ninth World Conference on Lung Cancer, “IASLC 2000 Tokyo Declaration on
Tobacco”, [International Association
for the Study of Lung Cancer] Tokyo, Japan, 2000.
39.
This conference resolves that:
1. All nations implement the International
Strategy for Tobacco Control
. . .
4. This conference further resolves that:
a.
Duty-free sales of tobacco products be prohibited. (p.1017)
. . .
AN INTERNATIONAL STRATEGY FOR TOBACCO CONTROL
Since measures to deal with the tobacco problem
must be comprehensive and long term, the following individual actions should
form the basis of such a strategy.
. . .
4. Economic policies to
discourage production and use of all tobacco products, including: progressive
significant increases in taxation above inflation (and the growth of disposable income), and the allocation of a
specific proportion of such taxes for tobacco control purposes; (p.1018)
Ninth World Conference on
Tobacco and Health, “Resolutions of the Ninth World Conference on Tobacco and
Health” In: Slama, K. ed. Tobacco
and Health: Proceedings from the 9th
World Conference on Tobacco and Health.
(New York: Plenum Press, 1995),
pp.1017-1018.
40.
The Regional Committee,
. . .
2. URGES Members States
(b) to adopt and strengthen
policies which will reduce tobacco consumption, particularly among children,
women and the poor, including, . . . increasing taxes on tobacco products;
(p.14)
Regional Committee,
Southeast Asia Region. “Resolution” In: “Tobacco or Health: Actions for the 21st
Century. Report and Documentation of
the Technical Discussions held in Conjunction with the 36th Meeting
of CCPDM [Consultative Committee for Programme Development and
Management]” Dhaka, September 2, 1999.
World Health Organization, Regional Office for South-East Asia. New Delhi.
February 2000.
41.
The European Union, the European region, Latin
America and the other countries represented at this conference call for
governments, international organizations, and NGOs to:
. . .
2) Increase the price of all tobacco products by more than the rate of
inflation and the rate of increase in incomes; exclude tobacco products from
price indices; and dedicate at least one percent of tobacco tax revenues to
tobacco control activities.
Second European Conference
on Tobacco or Health and First Iberoamerican Conference on Tobacco or Health,
“Canarias Declaration” Las Palmas de Gran Canaria, Spain, 23-27 February 1999.
42.
The following resolutions were accepted
unanimously by participants in the Conference at the closing session. (p.965)
. .
.
TAXATION
Seventh World Conference on Tobacco and Health.
“Conference Resolutions” In: Durston, B., Jamrozik, K., ed. Tobacco & Health 1990: The Global
War. Proceedings of the Seventh World
Conference on Tobacco and Health, 1st-5th April 1990,
Perth, Western Australia, Australia. 1990. pp.965-966.
43.
Finally, the Conference
recognises that the key issues are: (p.239)
. . .
·
Increasing tobacco
taxation significantly (p.240)
Smokefree Europe:
Conference on Tobacco or Health, “Smokefree Europe Conference Resolution on the
European Tobacco Strategy” In: Waller, M., Lipponen, S., eds. Smokefree
Europe: A Forum for Networks, Smokefree Europe: Conference on Tobacco or Health,
Helsinki, Finland, 2-4 October 1996, pp.238-240.
44.
The Conference
recommends:
i.
WHO and governments
formulate an international framework convention to include protocols for
comprehensive tobacco control programmes and the recommendations from previous
world conferences, which could be made broader and more restrictive over time;
(p.117)
Tenth World Conference on
Tobacco or Health, “Resolutions of the Ninth World Conference on Tobacco and
Health” Paris, France, 1994. In: Slama, K. Tobacco Control and
Prevention: A Guide for Low Income
Countries Tenth World Conference on Tobacco or Health (Paris: International Union Against Tuberculosis and
Lung Disease, 1998), pp.117-120.
45.
In particular, excise
taxation determines the level of retail prices, the price structure and
therefore the overall pattern of smoker demand for our products. (p.1)
. . .
Strategies
This policy will be
achieved by focusing upon the following main strategies:
1.
Seek to reduce excise
taxation, or to ensure that its level does not increase at a rate greater than
inflation.
2.
To secure smaller and
more frequent increases in preference to larger and only occasional increases
in excise taxation. (p.2)
. .
.
Although a reduction in
excise levels is not a realistic objective for most companies, the opportunity
to lobby for it should always be considered, particularly if current revenue
yields are falling. However, a more
realistic objective for most companies is to contain the increase in taxation
to a level below the rate of inflation, or at worst in line with it. Arguments supporting this include:
. . .
- the normal economic
arguments that tax increases result in falling demand, employment,
profitability and investment, both directly upon the company and indirectly
upon suppliers.
. .
.
- increases in taxation
may result in a decline in consumption sufficient to bring a fall in revenue
yield to the Government. Because of the
inelasticity of demand for cigarettes over the longer term, this result rarely
occurs. However, it is not uncommon to
see a short term decline in the revenue yield which can be pointed out to
Government when opposing increases.
- increases in taxation
which reduce consumption may mean the destruction of the vitality of the
tobacco industry and thus the erosion of the tax base which the Government may
wish to protect over the longer term. (p.3)
Bingham, P.M. (Marketing
Department. British American Tobacco Company). “Key Area Paper: Excise
Taxation of Tobacco Products” April 1991. Bates No. 303561888-909.
46.
The method of taxation
applied will always have an effect upon the cigarette industry and the level of
taxation raised. It influences the
amount collected, the quality of the product, the range and level of retail
prices, the overall level of demand, and even the product choices of consumers.
(p.1)
. . .
No indirect taxation,
including cigarette taxation, is totally neutral. The cigarette market can be shaped to a significant extent by the
tax system and structure under which the manufacturer operates. The method of taxation and the tax rates
directly affect the product, its quality, price, while consumer demand and
export opportunities can also be influenced. (p.18)
. . .
The psychology of smokers
is such that it is better, for the maintenance of demand, to present them with
a number of small tax/price increases over a period of time, rather than one
large increase. (p.19)
British-American Tobacco
Company Limited. Tobacco Taxation
Guide: A Guide to Alternative Methods
of Taxing Cigarettes and Other Tobacco Products. December 1994.
47.
On a trend basis,
excluding price effects, we would expect these new smokers to start in
1983. However, based on the National
Bureau of Economic Research elasticities and an estimated 15.1% increase in the
real price of cigarettes during 1983, the number will be lower.
. . .
If these new smokers had
averaged only ten cigarettes a day, they would have accounted for 605 million
cigarettes in 1983 or about .1% of Industry.
Some of these people may
later choose to start smoking. However,
for those 17-25, the odds are against it.
(p.3)
Burrows, D.S. (R. J.
Reynolds Tobacco Co). “Estimated Change in Industry Trend Following Federal
Excise Tax Increase” Memorandum to P.E. Galyan. . September 20, 1982.
48.
Escalating taxes on tobacco products are
affecting our livelihood.
As
the price of tobacco products is pushed ever higher by taxes, sales go down.
(p.1)
Fennell, P.J. (President & CEO, Rothmans, Benson & Hedges
Inc.), Mercier, J.-L. (Chairman & CEO, Imperial Tobacco Limited),
Fitzgerald, C.W. (President and CEO, RJR-Macdonald Inc.). Letter to G.E.
Morehouse (Morehouse G E Limited), March 14, 1989.
49.
The problem with tax increases is that it does
decrease consumption, just as desired by the social engineers posing these
increases want to see.(p.3)
Ferguson, R.N. and Waugh, M. (Philip Morris), “Social-Political Context
of Cigarette Sales and Use in the U.S. – 1987” Memorandum to Strategic Planning
Committee. Philip Morris U.S.A. Interoffice Correspondence. May 27, 1987.
50.
A negative correlation
exists between industry volume and retail price of cigarettes relative to
inflation. Higher price relative to
inflation could be expected to produce negative effects on industry volume.
(p.1)
Frydman, U. (R.J.
Reynolds Tobacco Co.). “Re: Analysis of
Cigarette Price” Memorandum to R.E.
Anderson, W.D. Hobbs, M.V. Hunter.
March 13, 1979.
51.
Excessive cigarette
taxation continued to be the industry’s major problem in fiscal 1986.
Substantial increases in taxes at both the federal and provincial levels
resulted in a further slowing of unit sales.
(p.2)
Imasco Ltd., Annual
Report 1986. 1986.
52.
As in past years,
changing social attitudes towards smoking and escalating taxes resulted in a
decline in industry volume and the continued shrinkage of the industry. (p.8)
. . .
Cigarette taxes increased
moderately in 1987. With the exception
of Alberta and Nova Scotia, consumers were not faced with the levels of federal
and provincial tax increases that characterized previous years. As a result, the tailor-made cigarette
industry slowed its rate of decline to 5.3%, with shipments totalling some 52.4
billion cigarettes. (p.10)
Imasco Ltd., Annual
Report 1987 for the nine months ended December 31, 1987. 1988.
53.
The past year was a
difficult one for the tobacco industry in Canada as it strove to overcome the
burden of excessive taxation on cigarettes.
Cigarette consumption in
Canada has declined in the last five years form 65.5 billion units to 54.7
billion units. (p.6)
. . .
In January 1987, Imperial
Tobacco announced plans to close its Quebec City plant. This plant was opened in 1949 and has a
production capacity in excess of eight billion cigarettes a year. This closure is the result of excessive
taxation and its negative impact on sales. (p.6)
. . .
Without further excessive
tax increases, the industry should see a slowdown of the decline in sales of
cigarettes. (p.8)
Imasco Ltd., Annual
Report 1987. 1988.
54.
The slowdown in the rate
of decline was the result of virtually unchanged consumer cigarette prices.
As the year progressed, five
provinces increased taxes, the most notable being Ontario where taxes increased
by 35%. As a result, industry volume
declined further. (p.10)
Imasco Ltd., Annual
Report 1988. 1989.
55.
Canadian cigarette
manufacturers were expecting a modest decline in consumption in 1989. However, the April federal budget struck a
major blow to industry forecasts. The
excise duty on manufactured cigarettes increased by an incredible 161% and on
fine cut tobacco, by 654%. Seven
provinces also raised tobacco taxes and Canadian smokers faced overall price
increases of up to 35% on manufactured cigarettes and 89% on fine cut
tobacco. Industry volume of
manufactured cigarettes fell 7% to 47.6 billion units and Imperial’s volume dropped
4% to 27.5 billion units. (p.8)
Imasco Ltd., Annual
Report 1989. 1990.
56.
The rationale for these
taxes is that they discourage smoking while generating substantial government
revenues. However, there is no evidence
that the policy has had a measurable effect on the incidence of smoking by
Canadians and, with smuggling, tax revenues are much less than expected. (p.4)
Imasco Ltd., Annual
Report 1992. 1993.
57.
Sharply higher prices and
diminishing social acceptance of smoking have led to smaller percentages of
regular smokers in all age/sex cohorts through the 1980s. (p.1)
…
CONCLUSIONS
Even a cursory comparison
of price and volume data in the 1980s compared with the 1970s shows that
prevalence of cigarette smoking has plunged with the price increases of the
1980s. A large measure of the price
jump is due to tax increases, by both federal and provincial governments.
This study has found that
average long-run price elasticities for the period 1973-88 are around 0.7,
either from the intensity/prevalence route or from using shipments data. Pooling the provincial data gives a
long-term price elasticity for this period of about 0.8 (the higher elasticity
provinces where population is smaller get equal weight with the more populous
regions). (p.14)
Jacobsen, P.M., Rodway, P. “Tobacco Demand Elasticity Study,” Prepared
by Informetrica for Canadian Tobacco Manufacturers’ Council. January 17, 1990.
58.
But even though Canadian tax hikes caused a
dramatic decline in the sale of legal, tax-paid cigarettes because of
smuggling, actual cigarette consumption didn’t decline. So the government learned a painful lesson –
higher taxes did not discourage smoking.
But they did encourage crime.
Johnston, J. (Chief Executive Officer, RJ Reynolds Worldwide), “Commit
Now” Presentation to Tabexpo 94 Congress. Vienna, Austria. In: Tobacco
Reporter, December 1994, pp. 44, 46, 48, 50, 52.
59.
I have just finished
studying a National Bureau of Economic Research (NBER) working paper entitled
“The Effect of Government Regulation on Teenage Smoking.” . . .This is by far
the best study I have read concerning the effects of the anti-smoking
commercials, and the only study I know of that attempts to determine the price
elasticity of cigarettes among different groups.
Because of the quality of
the work, the prestige (and objectivity) of the NBER, and the fact that the
excise tax on cigarettes has not changed in nearly 30 years, I think we need to
take seriously their statement that “. . .if future reductions in youth smoking
are desired, an increase in the Federal excise tax is a potent policy to
accomplish this goal.” (p.1)
. . .
In any event, and for
whatever reason, it is clear that price has a pronounced effect on the smoking
prevalence of teenagers, and that the goals of reducing teenage smoking and
balancing the budget would both be served by increasing the Federal excise tax
on cigarettes. (p.3)
. . .
Given a price elasticity
of –0.4 for total cigarette sales and –1.2 for teenage smoking participation, a
25 percent increase in the excise tax could be expected to reduce industry
sales to about 1.2 percent below what would be expected in the absence of such
an increase, and to reduce the number of teenage smokers to 3.5 to 4.0 percent
below the number that would otherwise be expected. (p.4)
Johnston, M., “Teenage Smoking and the Federal Excise Tax
on Cigarettes” Memorandum to Harry G.
Daniel. Philip Morris U.S.A.
Inter-Office Correspondence. September
17, 1981. Bates No.2001255224-227.
60.
Thus, price clearly is
important. (p.2)
. . .
The effect of a price
increase is to cause sales to increase more slowly than would have been
the case without a price increase. This
means that if the elasticity is –0.42, a ten percent increase in price would
cause sales to be 4.2 percent lower than would have been the case if there had
not been a price increase.
In a period of relative
price stability, a price increase would be followed by an absolute decline in
sales, but in a period of sustained inflation, when price increases of one good
are masked by the general increase in prices, the effect of a price increase
should, theoretically, be relatively transitory. (p.3)
Johnston, M.E., “Still More on the Price Elasticity of
Cigarettes” Memorandum to H.G.
Daniel. Philip Morris U.S.A.
Inter-Office Correspondence. March 25,
1982. Bates No.2043565313-328.
61.
Price elasticity works in
two ways. A price increase can cause a
decline in the number of people who use the product or in the amount of the
product its users consume. Usually it
works both ways. In the case of
cigarettes, about three-fourths of the elasticity is accounted for the by
smoker participation rate. Thus, if we
accept an elasticity of –0.2, an 11 percent price increase would lower the
consumption of current smokers by only about 0.6 percent and cause the number
of smokers to fall to about 1.7 percent below what it would otherwise have
been, both by increasing the number of smokers who quit and decreasing the
number of young people who begin to smoke.
Many of the quitters would, of course, subsequently resume smoking, but
those who are dissuaded from beginning to smoke would probably never become
smokers. (p.1)
. . .
As noted, a price
increase may also be an added inducement for older smokers, particularly older
males, to quit smoking. Since there are
more potential quitters than potential starters, the sharpest decline in the
number of smokers would be among males over 50. (p.2)
Johnston, M., “The Effect
of an Excise Tax Increase on Philip Morris Sales” Memorandum to Harry G. Daniel. Philip Morris U.S.A., Inter-Office
Correspondence. July 12, 1982. Bates
No.2045259373-374.
62.
You may recall from the
article I sent you that Jeffery Harris of MIT calculated, on the basis of the
Lewit and Coate data, that the 1982-83 round of price increases caused two
million adults to quit smoking and prevented 600,00 teenagers from starting to
smoke. Those teenagers are now 18-21
years old, and since about 70 percent of 18-21 year-olds and 35 percent of
older smokers smoke a PM brand, this means that 700,000 of those adult quitters
had been PM smokers and 420,000 of the non-starters would have been
PM smokers. Thus, if Harris is right,
we were hit disproportionately hard. We don’t need to have that happen again.
(p.1)
Johnston, M., “Handling an Excise Tax Increase” Memorandum to Jon Zoler. Philip Morris U.S.A. Inter-Office
Correspondence. September 3, 1987. Bates No.2058122240-241.
63.
The elasticity estimate
of 0.60 produced by the standard models using the most recent time series data
is somewhat higher than the previous estimates. Based on this estimate, increases in excise taxes would reduce
demand more than is typically expected, and therefore not increase revenue as
much. (p.4)
KPMG Peat Marwick, Policy
Economic Group. “Analysis of Cigarette
Price Elasticities”, Prepared for the internal use of: Philip Morris,
U.S.A. February 1990. Bates
No.2044982672-689.
64.
The retail price of
cigarettes relative to the inflation rate has a strong influence on industry
volume. For every 1% increase in the
retail price of cigarettes relative to other prices, there is approximately a
0.3% decline in volume. It appears that
the June, 1978 price increase of 85 cents/1,000 may have resulted in a loss of
approximately 1.75 billion cigarettes in industry volume. (p.2)
McCann, J., “Analysis of
Cigarette Price Changes: 1964-1978”
Prepared for R.J. Reynolds Tobacco Co.
March 13, 1979.
65.
Cigarette sales in Canada have fallen
considerably, from a peak of 66.5 billion units in 1981 to a forecasted level
of 47.4 billion units in 1989, with most of this decrease taking place in the
last five years. Although lifestyles are changing and the debate on tobacco use
and health explains part of this decrease, there is no doubt that taxation of
tobacco products is principally responsible. (p.2) [translation]
Neville, W.H. (President, Canadian Tobacco Manufacturers’ Council).
“Taxation of Tobacco Products” Memorandum to Michael Wilson (Minister of
Finance), January 8, 1990; LaRivière, J. (Vice-President, Public Affairs).
Letter to Gilles Loiselle (MP), February 1, 1990.
66.
The 3 cent a cigarette/$6
a carton increase announced in your budget, together with comparable increases
in taxes on other tobacco products, was simply the latest step in an apparent
effort to tax an industry out of business and to use tax policy to effectively
dictate the personal lifestyle decisions of Canadians. (p.1)
. . .
As for the impact on our
industry and related sectors, as we noted in our pre-budget submission to you,
the large tax increases imposed by federal and provincial governments in the
1980’s were primarily responsible for the loss of 5,000 tobacco-related jobs
and the closure of four manufacturing plants. (p.2)
. . .
If you are indeed using
tax policy to effectively force
Canadians to stop smoking, then you are creating a dangerous precedent and, in
our view, abusing the purposes of the tax system. Taken at your
word in wanting to discourage Canadians from smoking, you are saying, in
effect, that you will use sheer economic power, as represented by your power to
tax, to deprive Canadians of their right to choose for themselves whether or
not they wish to consume a legal consumer product. . . .
We have never disputed,
Mr. Minister, the government’s right to express its views on the alleged health
risks of smoking and even to encourage Canadians to stop—or not to
start—smoking. But that is a far cry
from using the tax system to effectively make that lifestyle decision for them
by trying to price the product beyond the practical economic reach of those of
limited financial means in particular. (p.3)
Neville, W., (President,
Canadian Tobacco Manufacturers’ Council), Letter to Michael Wilson, Minister of
Finance. March 13, 1991.
67.
The finance department’s
second announced objective has been to reduce consumption. Let me make it clear—there is no kidding
anyone on this—it works. That is, taxes
do impact on consumption . . . (p.3:5)
there is no question that
consumption is down measurably over the last five years and there is no
question in our minds that taxes have been a significant factor in that.
(p.3:6).
Neville, W. (President,
Canadian Tobacco Manufacturers’ Council), Testimony before the House of Commons
Legislative Committee F on Bill C-10, An Act to amend the Excise Tax Act and
the Excise Act. September 26, 1991.
68.
Our Forecasting Group has
determined that younger adult smokers, particularly younger adult male smokers,
tend to be very price sensitive. The
effect of a price increase on younger adult male smokers could be three to four
times greater than on smokers in general, in terms of negative impact on
volume.
Novak, G. (R. J. Reynolds
Tobacco Co.) “Price Elasticity Among Younger Adult Smokers” Memorandum to J.W.
Johnston, H.J. Lees. September 20,
1982.
69.
In the opinion of PM Inc.
and PMI , increases in excise and similar taxes have had an adverse impact on
sales of cigarettes. Any future
increases, the extent of which cannot be predicted, could result in volume
declines for the cigarette industry, including PM Inc. and PMI, and might cause
sales to shift from the premium segment to the discount segment. (p.29)
Philip Morris Companies
Inc., 10-Q filing with the U.S. Securities Exchange Commission, August 13,
1999.
70.
However, they [adult NBER
price elasticities] probably give a reasonable idea of the groups most affected
by price and the orders of magnitude of the effects… (p.4)
THE TEENAGE MODEL (p.4)
. . .
Large, negative price
elasticities were found. (p.5)
R.J. Reynolds Tobacco Co.
document, “Attachment A. Importance of Price Impact by Age/Sex to Total
Industry” (10/6/82). 1982.
71.
The success of the
C.T.M.C. in influencing the Federal Government to modify its tobacco taxation
policy has been identified as the key factor in arresting the market decline.
(p.3)
. . .
The Company will be
affected by the volume and profit pressures generated by the continued decline
of the market. The industry, by the end
of 1984, will have experienced two consecutive years of losses in excess of
5%. This severe decline is attributed
to:
a) the depressing effect
on consumer demand of the increases in the price of cigarettes, principally
because of governmental taxation policies. (p.6)
RJR-Macdonald Inc.,
“Strategic Business Unit. RJR-Macdonald Inc. Canada. 1985 Operating
Plan.” September 19, 1984.
72.
Punitive levels of taxation on tobacco products
continued to proliferate during the fiscal year. More than 6 million Canadian smokers contributed more than $4.1
billion in taxes to various levels of government, up from 1986, in spite of a
5% decrease in sales of manufactured cigarettes. We view excessive tobacco taxes as regressive and unfair,
discriminating against those socio-economic groups least able to afford such
taxes, jeopardizing jobs and investment in the industry and ultimately leading
to declines in the absolute revenues raised by governments. (p.4)
Rothmans Inc. Annual
Report 1988. 1988.
73. Taxation
In the fiscal year,
industry cigarette sales declined 2%.
This represents a significant improvement over the previous three years,
where the decline has averaged 5% in an environment where tobacco taxes have
increased substantially.
. . .
The government taxation
policy is inappropriate because:
. . .
· It is expected
to result in a decline in the consumer’s ability to afford this legal product,
and will serve to cause a further reduction of several thousand jobs associated
with the tobacco industry; (p.6)
Rothmans Inc. Annual
Report 1989. 1989.
74. Since 1982, tax increases at far above the
inflation rate have made it increasingly difficult for consumers to afford the
enjoyment of our products, resulting in a downward trend in tobacco sales.
(p.5)
. . .
The Corporation expects
that future earnings performance will be affected by two major factors:
declines in the total market caused by continued excessive taxation; and,
constraints on reversing negative market share trends due to increasingly
stringent government controls over the marketing and sale of tobacco products.
(p.7)
Rothmans Inc. Annual
Report 1990. 1990.
75.
The tax-engineered
decrease in consumption of tobacco products was partially offset by increased
industry selling prices.
. . .
The Corporation continues
to expect that future earnings performance may be adversely affected by two
major factors: declines in industry volumes caused by continued excessive
taxation; and, constraints on market share imposed by increasingly stringent
government controls over the marketing and sale of tobacco products. (p.11)
Rothmans Inc. Annual
Report 1991. 1991.
76.
Excessive taxation
continues to be a major factor that could adversely affect our operating performance
in future years. (p.9)
Rothmans Inc. Annual
Report 1992. 1992.
77.
No credible evidence
exists that anti-tobacco initiatives promulgated by the federal and provincial
governments have had any material effect on the smoking behaviour of Canadians.
(p.3)
Rothmans Inc. Annual
Report 1995. 1995.
78.
The federal and
provincial governments may be considering restoring sales and excise taxes
imposed on the manufacture and sale of tobacco products to levels similar to
those which existed prior to February 1994. . . . Restoring such taxes or
imposing additional taxes, levies or fees could adversely affect RBH’s sales
and operating income. In addition,
changes in federal or provincial taxation policies that result in fine cut and
pre-portioned tobacco stick products being taxed at higher levels would make
those products unattractive to consumers and also have an adverse effect on
RBH’s sales and operating income.
(p.39)
Rothmans Inc. Annual
Report 2000. 2000.
79.
A high cigarette price,
more than any other cigarette attribute, has the most dramatic impact on the
share of the quitting population.
Schwab, C., “Cigarette
Attributes and Quitting” Memorandum to
John Heironimus. Philip Morris USA
Inter-Office Correspondence. April 3, 1993. Bates No.2045447810.
80.
Tobacco taxation has
proven to be one of the most effective means of reducing tobacco use. As tobacco becomes more expensive, many
users will either quit or cut down.
Many children who would have otherwise started smoking will stay out of
the market entirely. Estimates made
from data compiled in the United States and Canada indicate that for every 10%
increase in the price of tobacco, consumption will fall by about 4%. Given the number of smokers and the health
consequences of smoking, the relationship between price and consumption
demonstrates that tobacco tax increases could prevent tremendous numbers of
tobacco-related deaths. (p.1)
Action on Smoking and Health [Canada]. “Tobacco
Taxation in Alberta”. ASH Position
Paper #1. Edmonton, Alberta. April
1993.
81.
Recommendation 1
1.1
Excise duty on tobacco
should be raised substantially.
. . .
1.2
Rationale
1.2.1
Studies all over the
world, and notably in the UK, have shown that increasing the real price of
tobacco leads to reduced consumption (see figures 2 and 3). Figure 2 shows that successive UK
Governments have increased the real price of cigarettes and this has
contributed to a fall in consumption from 127 billion cigarettes in 1979/80 to
88 billion cigarettes in 1992/3. (p.7)
Action on Smoking and
Health [U.K.] et al [57 organizations].
“Tobacco Taxation: A Submission to the Chancellor of the Exchequer by
Health and Welfare Organizations. November 1994 Budget” 1994.
82.
However, since taxes have
been raised a lot in recent years [in Venezuela], I believe that factor has had
an important influence on the decrease of cigarette consumption. (p.51)
Adrianza, M., “Public
Policy Issues,” In: 8th World Conference on Tobacco or Health,
Building a Tobacco-Free World. March 30-April 3, 1992.
Buenos Aires, Argentina. (American Cancer Society, 1994). pp.51-53.
83.
Considerable evidence shows that higher tobacco
prices can lead to a drop in consumption – particularly among young
people. Now that smuggling is no longer
a concern (due to higher tobacco prices in the US), the reasons to support
tobacco tax increases are more compelling than ever. (p.1)
Alberta Tobacco Reduction
Alliance, “Tobacco Tax Brief” August 2001.
84.
Since price increases
have been shown to depress the demand for cigarettes, tobacco taxation
increases are strongly recommended as a component of a comprehensive smoking
control program. Especially if the
price increases are substantial, the Federal Government could use excise tax rates
more as a sumptuary tax. (p.958)
Alchin, T.M. “Future Tobacco Taxation in Australia,” In:
Slama, K., ed. Tobacco and Health:
Proceedings from the 9th World Conference on Tobacco and
Health. (New York: Plenum Press, 1995), pp.955-58.
85.
New Zealand has
introduced a comprehensive tobacco control programme, involving a number of
initiatives under four categories of intervention: tobacco legislation and
enforcement, smoking cessation services, health promotion, and tobacco
taxation. However, of all initiatives,
tobacco taxation is the one that has been most closely evaluated. A recent tax increase (May 1998), for
example, saw national tobacco consumption fall by six percent just about
overnight. (p.599)
Allen, M.J., “Tobacco Tax
- The New Zealand Experience,” In: American Cancer Society, American Medical
Association, The Robert Wood Johnson Foundation. 11th World Conference on Tobacco OR Health. Promoting a Future Without Tobacco. Abstracts. Vol. 3. August, 6-11, 2000. Chicago, Illinois, USA, p.599.
86.
Conclusion
This
report has reviewed the impact of tobacco control policies on tobacco
production and on employment. The
report studied the record of the 1980s and possible future scenarios that
include a 50% reduction in tobacco consumption as well as retaliatory actions
on the part of tobacco manufacturers, like terminating production in Canada and
supplying the Canadian market from abroad.
Whatever question was investigated, it was found that there were only
small losses in jobs linked to tobacco production, particularly when seen in the
context of the Canadian economy as a whole.
Moreover,
many of these jobs losses met by attrition and retirement rather than
layoffs. Furthermore, in most cases,
new jobs were created to offset the losses as consumers shifted their spending
to non-tobacco products and as governments spent the proceeds of their enlarged
tax revenues.
These
findings point to one overall conclusion: The choice between “lives” and “jobs”
is a false dilemma. Canadians can have
a progressive health policy without causing substantial economic dislocation.
(p.30)
Allen,
R.C. (Professor of Economics, Department of Economics, University of British
Columbia). “The False Dilemma: The Impact of Tobacco Control Policies on
Employment in Canada” February 1993, and accompanying news release and
highlights.
87.
Since 1980, Canada has
had tremendous success in reducing the consumption of tobacco and thereby
saving the lives of thousands of Canadians who would otherwise have died form
tobacco related illnesses. Increased taxation
of tobacco products has been the central weapon in this fight. High prices have cut consumption of people
already addicted to tobacco and, more dramatically, dissuaded thousands of
teenagers from starting to smoke. (p.1)
Allen, R.C. (Visiting Professor of Economics, Department
of Economics, Harvard University) “The
Health and Economic Impact of Tobacco Tax Rollback.” Harvard University,
Department of Economics. Cambridge, Massachusetts. January 1994.
88.
The increase in tobacco
use and the resulting increase in premature death is directly attributable to
the policy followed by the federal government and certain provincial
governments of cutting tobacco taxes to combat smuggling in 1993. These policies lowered the average price of
cigarettes (including contraband) in Canada by almost 35%. Teenage cigarette use is very price
sensitive. The result of the price
decline is a marked increase in the number of smokers. Most of these new cigarette users will
become addicted to tobacco and consume cigarettes for the rest of their lives.
(p.4)
Allen, R.C.
(Professor of Economics, University of British Columbia) “Rising Tobacco
Consumption in Canada, 1994”. January 29, 1995.
89.
The results also support
previous conclusions that cigarette consumption is negatively related to changes
in price (e.g., U.S. Department of Health and Human Services 1989). The value of the estimated price elasticity
varies across countries, time periods, and other factors, but the overall
conclusion is that demand is inelastic.
Thus, a price increase tends to reduce consumption while increasing
revenues. (p.96)
Andrews, R.L., Franke
G.R. “The Determinants of Cigarette
Consumption: A Meta-Analysis,” Journal of Public Policy & Marketing
1991; 10(1): 81-100.
90.
When the national
sub-group of smokers were asked whether they had reduced the amount smoked due
to price increases during the past few years, approximately one in three stated
that they had (34%). Of the respondents
who had recently quit smoking (within the past three years), 22% stated that
price was a major factor in their decision to quit. (p.6)
The smoking habits of
younger smokers were more likely to be affected by price increases (36% of 18
to 34 year-olds, and 37% of 35 to 54 year olds had reduced smoking due to
price), than those in the 55 and older group.
Of the smokers in this latter classification, a majority (76%) stated
that they have not reduced their smoking due to price increases. . . . (pp.6-7)
Female smokers appear to
be more sensitive to price increases than male smokers. Thirty-eight percent of female smokers
surveyed smoke less as a result of the increased price of tobacco, compared to
thirty percent of male smokers. Among
those who have quit recently, males and females were virtually equal in
reporting that price was a major motivating factor (22% of males and 21% of
females).
University graduates and
upper income groups ($50,000 and over), are understandably less responsive to
price increases. Expectedly, for former
smokers in the under $30,000 household income group, price was a major factor
in quitting (38%). Twenty-seven percent
of ex-smokers with some high school education identified price as a major
factor in the decision to quit. (p.7)
Angus Reid Group,
Inc. “Study on Smoking and Taxation
Issues”. Prepared for: Canadian Heart
and Stroke Foundation. Ottawa, Ontario.
January 1992.
91.
An analysis of the demand
for tobacco in Britain in the period 1951-1970 suggests the following
conclusions: (p.435)
The price elasticity is
low, in line with earlier studies. It
is around 0.4 for women and not significantly different from zero for men.
(p.436)
Atkinson, A.B., “Smoking
and the Economics of Government Intervention,”
In: Perlman, M. (ed.), The
Economics of Health and Medical Care, Proceedings of a Conference held by the
International Economic Association at Tokyo. Macmillion. 1974.
92.
the overall price
elasticity is low, as was found by earlier writers, and there appear to be
clear differences between men (for whom it appears not to be significantly
different from zero) and for women (for whom it is about 0.35). (p.279)
Atkinson, A.B., Skegg,
J.L., “Anti-Smoking Publicity and the Demand for Tobacco in the U.K.,” The Manchester School
1973;41:265-282.
93.
Summary of
recommendations
. . . An estimated
102,500 or 40% fewer children would be likely to take up smoking if the
government adopted the recommendations contained in this proposal. Health and medical organizations throughout
Australia call on the government to:
1. Increase and reform
excise and customs duty on tobacco so that, by the Year 2000, Australian
cigarettes cost at least 30 cents per stick or on average $10 per packet. (p.5)
. . .
Reducing the
affordability of cigarettes is the simplest, most inexpensive and single most
effective step that the federal government can take to reduce uptake of smoking
by Australian children. (p.9)
Australian Cancer
Society, National Heart Foundation.
“Federal Excise Duty on Tobacco: A Proposal to the Federal Parliament;
May 1998 Budget.” 1998.
94.
For the first period, the
median price elasticity of –0.556 (for the “no bootlegging correction” group)
is consistent with the Lyon-Simon result of –0.511 for their period of study
(1951-64). However, as clear from the
table, this median price elasticity drops to –0.433 between 1965 and 1971 and to –0.173 after 1972. Similarly, the mean price elasticity drops
from –0.783 to –0.418 to –0.377 in the respective periods. (p.752)
Baltagi, B.H., Goel,
R.K., “Quasi-Experimental Price Elasticities of Cigarette Demand and the
Bootlegging Effect,” American
Journal of Agricultural Economics 1987;69(4):750-754.
95.
These results indicate …a
significant price elasticity (-0.2) ... (p.150)
Baltagi, B.H., Levin,
D. “Estimating Dynamic Demand for
Cigarettes Using Panel Data: The
Effects of Bootlegging, Taxation and Advertising Reconsidered,” Review of
Economics and Statistics 1986; 68: 148-155.
96.
The mean price elasticity
of demand is –0.71. The model indicates
that competition among manufacturers has been decreasing since 1980. A simulation shows that an increase in the
federal excise tax causes a greater increase in price, and a greater decrease
in consumption, than does the same increase in the average of state and local
tax rates. (p.457)
Barnett, P.G., Keeler,
T.E., Hu, T.-W. “Oligopoly Structure
and the Incidence of Cigarette Excise Taxes,” Journal of Public Economics
1995; 57: 457-470.
97.
For example, we find that
a 10 percent permanent increase in the price of cigarettes reduces current
consumption by 4 percent in the short run and by 7.5 percent in the long
run. In contrast, a 10 percent increase
in price for only one period decreases consumption by only 3 percent. In addition, a one period price increase of
10 percent decreases consumption in the previous period by approximately 0.7
percent and consumption in the subsequent period by 1.5 percent. These estimates illustrate the importance of
the intertemporal linkages in cigarette demand implied by addictive behavior.
(p.2)
Becker, G.S., Grossman, M., Murphy, K.M. “An Empirical Analysis of Cigarette
Addiction.” National Bureau of
Economic Research, Working Paper No.3322.
Cambridge, MA. April 1990.
98.
The evidence from
smoking, heavy drinking, and gambling rather strongly supports our model of
rational addiction. In particular, long-run
price elasticities are sizable and much bigger than short-run elasticities,
higher future as well as past prices reduce current consumption, lower-income
persons respond more to changes in prices of addiction goods than do
higher-income persons, whereas the latter respond more to changes in future
harmful effects, and younger persons respond more to price changes than older
persons. (p.240)
Becker, G.S., Grossman,
M., Murphy, K.M. “Rational Addiction
and the Effect of Price on Consumption,” AEA Papers and Proceedings
1991; 81(2): 237-241.
99.
Permanent changes in
prices of addictive goods may have a modest short-run effect on the consumption
of addictive goods. This could be the
source of a general perception that addicts do not respond much to changes in
price. However, we show that the
long-run demand for addictive goods tends to be more elastic than the demand
for nonaddictive goods. (p.695)
Becker, G.S., Murphy,
K.M. “A Theory of Rational Addiction,” Journal
of Political Economy 1988; 96(4): 675-700.
100.
Results. Among adult
smokers, 3.5% reported that they had stopped smoking, owing in part to the
price increase; 35% had considered quitting and 19% had attempted to cut the
cost of smoking by switching to cheaper brands or cutting down. Among teenagers, 21% had considered quitting
and 26% had cut costs. Low-income
smokers were more responsive to the price increase than more affluent smokers.
Conclusions. A modest and
temporary price increase promoted quitting among adult smokers and reduced cigarette
consumption among low-income teenagers. (p.1389)
. . .
In conclusion, these
results suggest that taxes on cigarettes, even if they are countered by tobacco
industry price wars, serve to promote smoking reduction among both adults and
teenagers, especially those from low-income households. Even a temporary price increase apparently
reinforces latent intentions to quit among adults. A tax provided economic incentives to quit and may also send a
potent message of societal disapproval that may affect smokers’ behavior. Indeed, coupled with appropriate cessation,
prevention, and educational initiatives, a cigarette excise tax may become, for
many smokers, the last straw on the camel’s back. (p.1391)
Biener, L., Aseltine,
R.H. JR, Cohen B., Anderka, M. “Reactions of Adult and Teenaged Smokers to the Massachusetts
Tobacco Tax” American Journal of Public Health 1998; 88(9): 1389-91.
101.
It is also interesting to
note that the tax coefficient in equation (7) is substantially larger than the
health scare (D64) or advertising ban (D71)
coefficients. These values suggest that
cigarette excise taxes had more effect on reducing consumption during the
period studied (1954-80) than either the health scare or the advertising ban. (p.408)
Bishop, J.A., Yoo,
J.H. “ ‘Health Scare’, Excise Taxes and
Advertising Ban in the Cigarette Demand and Supply,” Southern Economic
Journal 1985; 52(2): 402-411.
102.
Although increasing
excise taxes on cigarettes has been suggested as one of the most cost-effective
short-term strategies to reduce tobacco consumption among adults and prevent
youth initiation of tobacco use, a tax increase combined with an anti-smoking
campaign can be more effective in sustaining the reduction in per capita
consumption than a tax increase alone. (p.248)
Bjornson, W., Sahr, R.C.,
Moore, J., Balshem, H., Fleming, D., Strouse, R., Hall, J., Steel, B.S. “Tobacco Tax Initiative - Oregon 1996,” Morbidity
and Mortality Weekly Report 1997; 46(11): 246-248. [note: quotation is from
an Editorial Note accompanying the article]
103.
A rise of at least 5 per
cent in real prices is required as a minimum in face of the upward pressure of
income on consumption. (p.215)
Bosanquet, N., “Have
Higher Tax Rates Reduced the European Smoking Rate?” In: Slama, K., ed. Tobacco and Health: Proceedings from the 9th World
Conference on Tobacco and Health.
(New York: Plenum Press, 1995),
pp.213-216.
104.
An increase in smoking
restrictions so that the index increases by 0.5 will decrease the quantity of
cigarettes sold domestically by 4%, whereas a $0.75 per pack tax increase will
decrease the quantity of cigarettes sold domestically by nearly 19%. (p.950)
Brown, A.B. “Cigarette
Taxes and Smoking Restrictions: Impacts
and Policy Implications,” American Journal of Agricultural Economics 1995;
77: 946-951.
105.
- Numerous economic
studies give estimates of the price elasticity of demand for cigarettes based
on various statistical methods and historical data.
- There is a wide range
of estimates from these studies.
- The estimates range
from –0.2 to -0.75. In other words,
some studies indicate that a 10 percent increase in the price of cigarettes
will result in a decline in overall cigarette consumption of 2 percent while
other studies indicate a decline of 7.5 percent. (p.1)
. . .
Becker (University of
Chicago and winner of the 1992 Nobel Prize in Economics), Grossman, and Murphy
have conducted one of the most recent and widely respected studies on the
effects of price on cigarette consumption.
This work utilizes a very sophisticated economic model that accounts for
the dynamic effects of addiction to products such as cigarettes. Their study indicates that in the short-run
a 10 percent increase in the price of cigarettes will cause a 4 percent decline
in cigarette consumption. However,
their work indicates that in the long run a permanent 10 percent increase in
the price of cigarettes will lead to a 7.5 percent decline in cigarette
consumption. (p.2)
Brown, A.B. (Hugh C. Kiger Associate Professor
of Agricultural and Resource Economics, North Carolina State University) “The
Effect of Cigarette Price on Cigarette Consumption: A Partial Summary of Research Findings.” North Carolina State University. February 26, 1998.
106.
Long run effects of
cigarette tax increase of $1.50 per pack on US cigarette consumption
·
Using parameter estimates (demand
elasticities) from some of the most widely published studies of the
relationship between cigarette consumption and price yield forecasts of a long
term decline in total US cigarette consumption of between 19 and 49 percent.
Brown, A.B.
(North Carolina State University).
“Long Run Effects of a $1.50 per Pack Increase in Cigarette Taxes.” March 20, 1998.
107.
A study was conducted to
assess the impact of the February 1994 tobacco tax decrease on smoking among
grade 10 youth who were participating in a longitudinal smoking prevention
study. . . . Forty-eight percent of all smokers reported that they had
increased the amount they smoked after the tax decrease, while only 16%
reported decreased smoking over this period.
Findings were similar for both males and females. These findings suggest that many underage
youth found it easy to purchase cigarettes, and that almost half of grade 10
youth who were smoking reported an increase in their smoking after the tax
decrease. (p.1)
Brown, K.S., Taylor, T.E., Madill, C.L.,
Cameron, R. “The Relationship Between
the Tobacco Tax Decrease and Smoking Among Youth: Results of a Survey in South-Western Ontario.” Ontario Tobacco
Research Unit, Working Paper Series #14, Toronto, 1996.
108.
The cigarette companies
have opposed tobacco tax increases by arguing that raising cigarette prices
would not reduce youth smoking. But the
companies’ internal documents, disclosed in the tobacco lawsuits, show that
they know very well that raising cigarette taxes is one of the most effective
ways to prevent and reduce smoking among kids.
. . .
Numerous economic studies
in peer-reviewed journals have documented the impact of cigarette tax increases
and other price hikes on both adult and underage smoking. The general consensus is that every 10
percent increase in the real price of cigarettes will reduce the number of kids
who smoke by about seven percent. This
research indicates that raising federal cigarette taxes to produce a 10 percent
increase in cigarette prices would reduce the number of current youth smokers
by more than 300,000. (p.1)
Campaign for Tobacco-Free Kids [U.S.].
“Increasing Cigarette Taxes Reduces Smoking Among Youth (And the Cigarette
Companies Know It),” [Fact Sheet]. The
National Center for Tobacco-Free Kids.
November 1, 1999.
109.
The final recommendation
is the simplest: to continue the proven
formula of using fiscal policy to serve health objectives by implementing a
further increase in the taxation of cigarettes in the 1992 Federal Budget. Failure to increase these taxes will result
in increasing the affordability of this harmful product, and inevitably its
consumption will rise. (p.9)
Canadian Association of
Optometrists, Canadian Cancer Society, Canadian Centre for Substance Abuse,
Canadian Council on Smoking and Health, Canadian Medical Association, Heart and
Stroke Foundation of Canada, The Lung Association, Non-Smokers’ Rights
Association, Physicians for a Smoke-Free Canada. “Closing the Loopholes:
The Treatment of Tobacco
Taxation in the 1992 Federal Budget. A
Submission to the Minister of Finance, The Honourable Donald Mazankowski” Ottawa, Ontario. December 1991.
110.
In Canada it is clear
that in recent years tobacco tax increases have been the most reliable tobacco
control tool used by federal and provincial governments. The large tobacco tax increases by federal
and provincial governments during the 1980’s and in 1990-91 made tobacco
products less affordable which dramatically decreased consumption, especially
among children and adolescents. (p. ii)
. . .
The retail price of
tobacco increased dramatically in the 1980’s as federal and provincial
governments increased tobacco tax rates.
This led to unprecedented declines in consumption, even factoring in
contraband sales. Figure 3 illustrates the striking relationship.
The decline has been even
more dramatic among teenagers. Between
1979 and 1991, the percentage of Canadians aged 15-19 who reported they were
smokers declined from 46.5% to 22%.
Among daily smokers, the percentage declined from 42% to 16% (Figure
4). The proportion of smokers who were
occasional smokers as opposed to daily smokers increased. This has implications for public
health. A decrease in tobacco taxes
could result in more occasional smokers being able to afford to be daily
smokers. It could also reduce the
likelihood of occasional smokers quitting smoking altogether. (p.8)
Canadian Cancer Society. “Protecting Health and Revenue: An
Action Plan to Control Contraband and Tax-Exempt Tobacco” Ottawa, Ontario. January 1994.
111. Cigarette taxes should increase by at least $10.00 per carton ($5.00
federal, $5.00 provincial) in Ontario, Quebec, New Brunswick, Nova Scotia and
P.E.I. Taxes on other types of tobacco
products should be equalized with those on cigarettes.
. .
.
The
recommended increase will result in a significant reduction in smoking,
particularly among youth.
The
recommended increase will generate about a $1.5 billion in incremental revenue
for government. The federal government
should use a portion of the new revenue to fund a greatly enhanced tobacco
control program. (p.1)
Canadian Cancer Society. “Advancing Public Health: Recommendations for
a Major Tobacco Tax Increase” January 12, 1999.
112.
While there is no serious
disagreement with the fact that price affects consumption, there are varying
estimates of the extent of this relationship and the price-elasticities of
specific demographic groups. (p.1)
. . .
Based on the best
available information on the relationship between tobacco product price and
consumption, we can expect a price-elasticity of something in the range of –0.4
to –0.7 overall. A significantly
greater price effect can be anticipated among certain groups, such as young
people. (p.2)
Canadian Cancer Society, Canadian Council on
Smoking and Health, Canadian Dental Association, Canadian Medical Association,
Canadian Oncology Society, Heart and Stroke Foundation of Canada, The Lung
Association, Non-Smokers’ Rights Association, Physicians for a Smoke-Free Canada
“Tobacco Taxation in Canada: New Directions.
A Submission to the Honourable Paul Martin, Minister of Finance” Ottawa,
Ontario. February 1995.
113.
We were very supportive
of the 2 cents a cigarette increase brought forward in the 1989 Budget and wish
to reiterate our strong position in favour of tobacco tax increases. We are thereby submitting our proposal for
the up-coming 1990 federal budget. This
submission highlights the following points:
·
An increase of 2.5 cents
a cigarette and 4.5 cents per gram on manufactured tobacco would generate a net
gain of $1.2 billion to the Federal Treasury.
·
Such an increase in
tobacco tax would continue supporting the government’s overall policy to reduce
tobacco consumption. On the other hand,
failure to increase tobacco prices would undermine progress to date. Our suggested tobacco tax increase in
conjunction with other federal health measures would diminish consumption by
8%, thus reducing death, disease and economic losses caused by tobacco use.
(p.ii)
. . .
Perhaps the most
important reason for a further significant increase in tobacco taxes is the
reinforcement such a measure will give to the overall federal message with
respect to tobacco use. To effectively
protect non-smokers, control tobacco use, and prevent the death, injury and
economic losses it causes requires a comprehensive effort. The federal government used this approach in
1989 and it worked. (p.18)
Canadian Cancer Society,
Canadian Council on Smoking and Health, Canadian Lung Association, Canadian
Medical Association, Heart and Stroke Foundation of Canada, Non-Smokers’ Rights
Association, Physicians for a Smoke-Free Canada. “Tobacco Tax Policy in Canada, A Health Perspective. A Submission
to the Minister of Finance, The Honourable Michael Wilson” Ottawa, Ontario. January 1990.
114.
The 1991 federal budget
should build on the tobacco tax changes announced in the 1989 budget. Increases in taxation should reduce the
affordability of tobacco products and thus reduce their consumption by existing
smokers and deter non-smokers – especially the young -- from becoming addicted.
(p.3)
. . .
Perhaps the best
assessment of the relationship between the price and demand for tobacco
products in Canada is simply to examine the experience of Canadian taxation and
consumption of tobacco products over the past few years. From 1980 to 1989 the real price of tobacco
increased by 101%, while total cigarette consumption declined by 20.2% or about
30% in per capita terms. . . .
The price of tobacco in
Canada has played a key role in reducing tobacco consumption. This is shown when Canadian sales data is
compared to that from the United States where price has been less of a
factor. U.S. consumption in the 1980’s
has fallen less than in Canada, and since the implementation of our Tobacco
Products Control Act and the 1989 tax adjustments, Canadian tobacco
consumption has fallen twice as rapidly as in the United States. (p.23)
Canadian Cancer Society,
Canadian Council on Smoking and Health, Canadian Medical Association, Physicians
for a Smoke-Free Canada. “Sustaining a
Successful Policy: The Treatment of Tobacco Taxation in the 1991 Federal
Budget. A Submission to the Minister of
Finance, The Honourable Michael Wilson” Ottawa, Ontario. December 1990.
115. Increasing tobacco taxes is a proven tool in combating youth smoking and
reducing the death toll from the tobacco epidemic. (p.1)
Canadian
Cancer Society, Coalition québécoise pour le contrôle du tabac, Non-Smokers’
Rights Association, Ontario Campaign for Action on Tobacco, Physicians for a
Smoke-Free Canada, “Tobacco Taxes in Canada” 2000.
116.
Tobacco taxation is an
essential policy tool to prevent nicotine addiction among teenagers and to
reduce the death toll among people who are already addicted. This is the consensus view of health groups
in Canada and in other industrialized countries. International organizations such as the World Bank recommend
increased tobacco taxes. Despite its
varying public comments, the tobacco industry itself, in its internal
documents, acknowledges the effectiveness of cigarette taxes in reducing
consumption and preventing tobacco use among teenagers. Indeed, the enormous energy that the
industry devoted to obtaining a tax rollback in 1994 provides a clear
indication of how it views this issue. (p.5)
Canadian Cancer Society,
Non-Smokers’ Rights Association, Physicians for a Smoke-Free Canada, Quebec
Coalition on Tobacco Control.
“Surveying the Damage: Cut-rate
Tobacco Products and Public Health in the 1990’s” Ottawa, Ontario. October 1999.
117. These measures [tobacco tax increases], besides increasing revenues,
complement the government’s comprehensive strategy of reducing tobacco smoking
in Canada, including legislation to ban tobacco advertising, and increasing
public knowledge of the health hazards of smoking. (p.56)
Canadian
Department of Finance. “Budget Papers. Tabled in the House of Commons by the
Honourable Michael H. Wilson, Minister of Finance” April 27, 1989.
118. Allan Rock, the Minister of Health, added, “This tax increase is part of
our efforts to improve the health of Canadians, particularly youth, by
encouraging them to stop smoking or remain non-smokers.” (p.1 of internet
version)
Canadian Department of Finance. “Tobacco Taxes Increased” February 13,
1998 [news release]. Downloaded September 23, 2001,
www.fin.gc.ca/news98/98-019e.html
119. “The measures introduced today
reaffirm the Government’s determination to reduce tobacco consumption in
Canada,” Minister Martin said.
Health Minister Allan Rock
added, “Tax increases are one part of our overall strategy to reduce smoking
rates, particularly among younger Canadians.
We must also intensify our efforts to reduce this leading cause of
preventable death through means such as tough anti-tobacco advertising,
upcoming labelling and information reporting regulations, and other measures.”
(p.2 of internet version)
Canadian Department of Finance. “Tobacco Tax Increases Announced”
November 5, 1999 [news release]. Downloaded September 23, 2001,
www.fin.gc.ca/news99/99-096e.html
120.
Current cigarette price
is always found to have a negative and, in most models, statistically
significant impact on average cigarette consumption. (p.201)
. . .
Estimated long-run price
elasticities of demand are in the range –0.27 to –0.36 for the full sample of
ever smokers. These estimates imply
that the recent doubling of the Federal excise tax on cigarettes will be
effective in reducing cigarette consumption, with average consumption falling
approximately 4-6% as a result of the 15% increase in average cigarette prices. This impact may be larger if the increase in
the excise tax results in a greater increase in cigarette prices. (p.201)
. . .
Finally, increased
cigarette prices, which would result from increased cigarette excise taxes, are
also found to have a significant negative impact on average cigarette
consumption. (pp.202-203)
Chaloupka, F., “Clean
Indoor Air Laws, Addiction and Cigarette Smoking,” Applied Economics
1992;24:193-205.
121.
Conclusions
The review of the
literature clearly shows that the answer to the question posed in the title of
this chapter is ‘very effective.’ Increasing cigarette and other tobacco taxes
will lead to significant reductions in the use of these products, resulting
from reductions in the frequency of use by continuing users, as well as
reductions in the prevalence of use.
Given this evidence, higher tobacco taxes are likely to be the single
most effective policy option for reducing the public health toll from tobacco. When combined with other tobacco control
activities, which could be funded by earmarked tobacco taxes, even larger
reductions in youth and adult tobacco use could be achieved. (p.7)
Chaloupka, F.J.
(Professor of Economics,
University of Illinois at Chicago; Research Associate, National Bureau of
Economic Research) “How Effective are Taxes in Reducing Tobacco
Consumption?” March 1999.
122.
Conclusions
A large literature from
economics clearly indicates that large cigarette price increases will lead to
substantial reductions in cigarette smoking, particularly in the prevalence of
cigarette smoking among youth. When
combined with other tobacco control activities, including prevention and
cessation programs, counter-advertising, comprehensive and aggressive
enforcement of limits on youth access, and more, even larger reductions in
youth and adult smoking could be achieved. (p.14)
Chaloupka, F.J. “The Impact of Proposed Cigarette Price
Increases,” Health Science Analysis Project (The Advocacy Institute). Washington, D.C. May 1998. Policy Analysis
No. 9.
123.
Conclusions
Economists have
contributed much to our understanding of the impact of prices and tobacco
control policies on cigarette smoking and other tobacco use. Most notably, they have clearly demonstrated
the importance of price as a determinant of tobacco use, helping to change the
once conventional wisdom that the demands for cigarettes and other tobacco
products, because of the addictive nature of these products, are exceptions to
the basic laws of economics. (p.S109)
Chaloupka, F.J.
“Macro-Social Influences: The Effects of Prices and Tobacco Control
Policies on the Demand for Tobacco Products,” Nicotine & Tobacco
Research, 1999; 1 (Supp. 1): S105-S109.
124.
The estimates presented
above support the hypothesis that increasing the price of cigarettes by
increasing excise taxes on them would effectively reduce smoking. Doubling the federal excise tax to $0.32
(proposed as part of a deficit reduction program), increasing price by
approximately 15 percent (assuming a competitive market), would lead, in the
long run, to a 4-6 percent fall in consumption even more if cigarette producers
use the tax increase as a coordinating mechanism for an oligopolistic price
increase. (p.740)
Chaloupka, F.J.
“Rational Addictive Behavior and
Cigarette Smoking,” Journal of Political Economy 1991; 99(4): 722-742.
125.
The data employed in this
research are taken from the 1992, 1993 and 1994 surveys of eighth, tenth, and
twelfth grade students conducted by the University of Michigan’s Institute for
Social Research as part of the Monitoring the Future Project. . . . The average
overall estimated price elasticity of youth cigarette demand of –1.313
indicates that large increases in cigarette excise taxes would lead to sharp
reductions in youth smoking. (p.i)
Chaloupka, F.J., Grossman, M. “Price, Tobacco Control Policies and Youth
Smoking,” National Bureau of Economic Research. Cambridge, MA. September 1996.
Working Paper No. 5740.
126.
Young men are much more
responsive to changes in the price of cigarettes than young women. The prevalence elasticity for young men is
almost twice as large as that for young women.
Smoking rates of young black men are significantly more responsive to
changes in price than young white men. (p.373)
Chaloupka, F.J., Pacula,
R.L. “Sex and Race Differences in Young
People’s Responsiveness to Price and Tobacco Control Policies,” Tobacco
Control 1999; 8: 373-377.
127. Every major national tobacco legislation proposed in the past two years
has called for significant increases in the price of cigarettes as a way to
discourage youths from smoking. One argument used
to oppose these bills is that increases in the price of cigarettes would cause
youths to substitute marijuana for cigarettes.
. . .
. . . Examination of the cross-price effects clearly
shows that higher cigarette prices will not increase marijuana use among
youths. In addition to reducing youth
smoking, we find that higher cigarette prices significantly reduce the average
level of marijuana used by current users.
Cigarette prices also have a negative effect on the probability of using
marijuana, but these findings are not significant at conventional levels. (p.i)
. . .
Conclusions
Based on the estimates described above, the answer
to the question posed in the title of this paper is clearly “No” – higher
cigarette prices will not increase youth marijuana use. Instead, these estimates indicate that
higher cigarette prices, in addition to reducing youth cigarette smoking, would
certainly lower the average frequency of marijuana use among youth users and
would likely lower the probability of using marijuana. According to these
estimates, a ten-percent increase in cigarette price is predicted to lower the
prevalence of youth marijuana use between 3.4% - 7.3% and decrease the average
level of marijuana use by regular users between 3.6% - 8.4%. (pp.15-16)
Chaloupka, F.J., Pacula,
R.L., Farrelly, M.C., Johnston, L.D., O’Malley, P.M., Bray, J.W. “Do Higher
Cigarette Prices Encourage Youth to Use Marijuana?” Working Paper 6939. National Bureau of Economic Research, Cambridge,
MA. February 1999.
128.
The real cigarette price
and clean indoor air laws are negative and statistically significant. . . . The
own-price elasticity of demand implied by models 2, 3, and 4 is about –0.24, an
estimate consistent with other recent studies of the demand for
cigarettes. (p.79)
Chaloupka, F.J, Saffer,
H., “Clean Indoor Air Laws and the Demand for Cigarettes,” Contemporary Policy Issues 1992; 10:
72-83.
129.
The estimates indicate
that higher smokeless tobacco taxes would significantly reduce the number of
young men using smokeless tobacco and the frequency of smokeless tobacco
use. (p.503)
. . .
The average overall price
elasticity of smokeless tobacco demand for male youths was –0.59. This implies that large increases in
smokeless tobacco excise taxes, by significantly raising price, would lead to
sharp reductions in smokeless tobacco use among young males, with much of the
reduction coming from a drop in the number of young male smokeless tobacco
users. (p.515)
Chaloupka, F.J., Tauras,
J.A., Grossman, M. “Public Policy and
Youth Smokeless Tobacco Use,” Southern Economic Journal 1997; 64(2):
503-516.
130.
The results described
above indicate that higher cigarette excise taxes, which would raise cigarette
prices, would result in substantial reductions in both smoking participation
and average daily cigarette consumption among US college students. The overall estimated price elasticity of
cigarette demand for college students fell in the range from –0.906 to
–1.309. Approximately half of the drop
in consumption resulting from increased cigarette prices would be the result of
reduced smoking participation, while the remaining half would come from
reductions in the number of cigarettes consumed by smokers. (p.369)
. . .
Thus, these estimates
confirm what had been the conventional wisdom: that cigarette smoking among
young adults is relatively more responsive to price than is smoking among
adults. The average overall price
elasticity of demand for college students of –1.11 is almost three times the consensus
estimate of –0.4 for adults. This
suggests that increases in cigarette excise taxes, which would increase
cigarette prices, are a very effective means of reducing cigarette smoking
among young adults. Given that this is
the age at which smoking habits are becoming firmly established, discouraging
smoking in this age group is likely to lead to permanent reductions in
cigarette smoking in all age groups. (p.370)
Chaloupka, F.J.,
Wechsler, H. “Price, Tobacco Control
Policies and Smoking Among Young Adults,” Journal of Health Economics
1997; 16(3): 359-73.
131.
Excise elasticities of
demand for non-cigarette tobacco and cigarettes were calculated for Papua New
Guinea for the 14 years 1973-86.
Respectively, these were –0.50 and –0.71. This means that 10 percent increases in cigarette and
non-cigarette tobacco excise are associated with an estimated 7.1 percent fall
in demand for cigarettes and a 5 percent decrease in the demand for tobacco. As
tax (excise) elasticities would normally be significantly smaller than price
elasticities, these results imply that the consumption of cigarettes and
tobacco in Papua New Guinea is much more responsive to prices than in the USA
and other Western countries. The level
of excise is therefore an important and practical instrument for the control of
consumption. These elasticities appear
to be the first reported for a developing country. It is suggested that if they are indicative of behaviour in lower
income countries then increasing tobacco and cigarette excise should be
considered an important strategy for the control of smoking in these countries
which because of their large populations, are huge markets for tobacco products
and thus major targets for tobacco control measures. (p.537)
Chapman,
S., Richardson, J. “Tobacco Excise and Declining Tobacco Consumption: The Case
of Papua New Guinea” American Journal of Public Health 1990; 80(5):
537-540.
132.
Results shown in Table 1
suggest the potential of cigarette pricing as an incentive to improve health
behaviour and reduce the number of smokers.
The consumption of cigarettes is more elastic among young people than
among adults, because young people have less money and are more sensitive to
price changes. Therefore, tax increases
will especially affect the smoking behaviour of young people. (p.8)
Choi, B.C.K., Ferrence, R.G., Pak, A.W.P. “Evaluating the Effects of Price on the
Demand for Tobacco Products: Review of
Methodologies and Studies.” Ontario
Tobacco Research Unit, Literature Review Series No. 11, Toronto, April 1997.
133.
Raising tobacco taxes is
the most effective way to rapidly and significantly reduce tobacco use by young
people. Youth tobacco consumption is
influenced by prices at least as much as adult consumption. For every 10 percent increase in cigarette
prices, demand among children and teenagers declines by as much as 14
percent. (p.7)
Coalition on Smoking OR Health [U.S.]. “Saving Lives and Raising Revenue: The Case
for a $2 Federal Tobacco Tax Increase.”
Washington, DC. July 1994.
134. Myth: An increase of one to two dollars in the tax on tobacco products
will result in the loss of hundreds of thousands of jobs in the US economy.
Reality: An increase in the
tobacco tax will significantly affect only a fraction of the jobs the Tobacco
Institute says are at risk and will create many new jobs. Few jobs will be lost and many lives will be
saved.
. . .
Tobacco causes death and
disease, which seriously harms the economy.
A reduction in tobacco use will improve productivity, reduce health care
costs, and guarantee additional economic activity. (p.10)
Coalition on Smoking OR Health [U.S.]. “Tobacco, Health, and Jobs:
Myths and Realities” World Smoking and Health 1994; 19(1): 9-10.
135. Canadian studies that examined the relationship of cigarette prices to consumption
for the periods 1950-1973, 1949-1980 and 1971-1981 reported elasticities of
–0.75, –0.73 and –0.71 repectively. (p.8)
Collishaw, N. (Bureau of
Tobacco Control and Biometrics, Laboratory Centre for Disease Control,
Department of National Health and Welfare [Canada]. “Tobacco Pricing” Working
Paper 12/84. October 1984.
136. Canada’s tobacco control policies became progressively more
comprehensive and effective from 1981 to the present. In addition to the advertising ban, there are strong warnings on cigarette
packages, effective protection from involuntary exposure to tobacco smoke in
many enclosed public places and workplaces, high tobacco taxes, and effective
promotional and educational campaigns in favour of a smoke-free life. From 1981 to 1992, cigarette consumption per
adult declined by over 37%. Prevalence
of smoking among adolescents 15 to 19 years of age declined by over half, from
47% in 1979 to 23% in 1991. (p.i)
Collishaw,
N.E. (Tobacco or Health Programme, World Health Organization) “Canada: Dealing
with Further Attacks After the Main Victory; Background notes for a
presentation to the Special Symposium: Case histories – Successes and failures
in developing national tobacco control programmes” Third International
Conference on Preventive Cardiology.
Oslo, Norway. June 30, 1993.
137.
In 1983, however,
cigarette sales declined by 4%, the first appreciable decline since 1949. The real price of cigarettes increased by
14% in 1983, reversing a long-term trend of a declining real price. (p.148)
Collishaw, N.E., Rogers,
B., “Tobacco in Canada,” Canadian
Pharmaceutical Journal; 1984; 117(4): 147-150.
138. If the Administration’s proposed increase in the tax on smokeless
tobacco products is enacted, we can expect 1.3 million current users of these
products to quit. The estimate of fewer
users is based on a 2.6% decrease in the number of smokeless users for every
10% increase in the price, a formula taken from research on cigarette smokers. Should manufacturers lower their prices as
they recently have on cigarettes, fewer users will quit.
And,
the tax would bring in $750 million in new revenue. (p.14)
Connolly, G.N. “Taxing Other Tobacco Products” World Smoking and
Health 1994; 19(1): 13-14.
139.
The introduction of
cigarette taxes, a limited health promotion programme, and the absence of
massive promotional campaigns by the sole tobacco company on Mauritius have led
to a striking and continued decrease in smoking prevalence and cigarette
consumption on the island. (p.345)
Cox, H.S., Williams,
J.W., de Courten, M.P., Chitson, P., Tuomilehto, J., Zimmet, P.Z., “Decreasing
Prevalence of Cigarette Smoking in the Middle Income Country of Mauritius:
Questionnaire Survey,” British
Medical Journal 2000; 321: 345-349.
140. When the price of something goes up, people buy less of it. That’s basic logic and basic economics.
That’s also the principle behind the most important factor in Canada’s
tobacco-control strategy: higher tobacco taxes. (p.119)
. . .
Higher prices can work in a
number of ways. Smokers may feel that the
price is too high and decide to quit or smoke less. Higher prices might combine with other factors and finally push a
smoker into quitting. Even if a smoker
only decides to cut down, this produces health benefits. Fewer cigarettes a day may reduce the risk
that a smoker will contract a tobacco-caused disease. As previously noted, people who smoke fewer cigarettes a day are
more likely to attempt to quit and to quit successfully than people who smoke
more cigarettes per day. For teenagers,
higher prices may push cigarettes beyond the level of affordability or may
delay the age when smoking begins, thus decreasing the long-term risk to
health. Decreasing the amount smoked
may reduce the risk that addiction will set in. (pp.119-120)
. .
.
High
tobacco taxes are a critical component of a comprehensive strategy. All forms of tobacco products should be
taxed at a rate equivalent to that for cigarettes to discourage cigarette
smokers from switching to cheaper alternatives. (p.249)
. .
.
There
should be an end to duty-free sales.
Lower duty-free prices encourage consumption and may result in large
quantities of tax-exempt tobacco entering the market illegally. As well, governments lose revenue. (p.250)
Cunningham,
R. Smoke & Mirrors: The Canadian Tobacco War (Ottawa: International
Development Research Centre, 1996).
141. Higher tobacco taxes will lead to a decrease in consumption, including
among price sensitive teenagers. In the
U.S., analysts estimate that the recent price increase will lead to a decrease in
U.S. consumption of 8-10%. (p.2)
Cunningham,
R. (Senior Policy Analyst, Canadian Cancer Society). “Re: Tobacco Taxes and Draft Report on Pre-Budget Consultations”
Letter to Chair and Members, Standing Committee on Finance, House of Commons.
November 30, 1998.
142.
Thus policy predictions
from our cross-sectional models appear to lend support to the claim that tax or
price increases can substantially reduce youth smoking. (p.18)
DeCicca, P., Kendkel, D., Mathios, A. “Putting Out the Fires: Will Higher Taxes Reduce Youth Smoking?”
Department of Policy Analysis & Management, Cornell University. December 1997.
143. In general, the results here indicate a somewhat higher sensitivity of
quitting hazards than starting hazards to cigarette prices, regulation and information.
(p.63)
Douglas, S. “The Duration of the Smoking Habit”
Economic Inquiry 1998; 36: 49-64.
144. In the models of experimentation, price was not an important variable,
and therefore, we do not report the elasticity estimates for experimentation
among either the 10-13-year olds or the >= 14-year-olds. As expected, price was negatively associated
with current and established smoking participation and conditional demand. Current smoking participation elasticity was
–0.83. Among current smokers, conditional
demand elasticity was –0.87, and total elasticity was –1.70. Among established smokers, the participation
elasticity was –1.56, conditional demand –0.68, and total elasticity was –2.24.
(p.266)
. . .
Despite these limitations, our findings represent a
unique contribution to the literature on the role of prices in deterring
adolescent smoking. Not just younger
smokers, but all experimenters appear unaffected by cigarette prices. . . .At the same time, our relatively large
conditional demand elasticity estimates for current smokers and the relatively
large participation elasticity estimates for established smokers suggest that
higher cigarette prices may indeed slow down progression from higher levels of
experimentation to established smoking patterns that are likely to persist as a
lifelong addiction. Therefore, far from
suggesting that price is not important, our research supports the conclusion
that cigarette prices are a critically important policy tool in reducing
adolescent smoking beyond experimentation. (p.269)
Emery, S., White, M.M.,
Pierce, J.P. “Does Cigarette Price Influence Adolescent Experimentation?” Journal
of Health Economics 2001; 20: 261-270.
145.
Using data for over
250,000 high school seniors from the Monitoring the Future Project over the
1977-92 time period, we estimate the impact of higher cigarette taxes on
smoking participation. Unlike all
previous papers on this topic, we use the time series variations in cigarette
taxes within a state to identify the impact of cost on smoking
participation. Using the full sample,
we calculate a smoking participation elasticity of 0.20, a value substantially
smaller than previous estimates. The
elasticity has however increased over time.
Data for the 1985-92 time period suggests the elasticity has risen in
magnitude to –0.50. We find no
difference in the elasticities for males and females, but a much larger
elasticity for nonwhites than for white, non-Hispanic teens (p.i).
. . .
To put these results into
perspective, consider the impact on teen smoking from a recent bill proposed by
Senator John McCain of Arizona that would raise cigarette taxes by $1.10 over a
period of years. To simplify the
problem, we will assume the tax hike happens in one year. In 1982-4 dollars, the $1.10 tax hike would
increase taxes by (1.10/1.622)=$0.678 per pack. Using the estimates for the 1985-1992 time period . . . this tax
hike will reduce teen smoking by 9.8 percentage points (0.678*-0.144). Given the current teen smoking among high
school seniors of 36.5 percent, this represents about a 27 percent drop in teen
smoking rates. (p.20)
Evans, W.N. (Department
of Economics, University of Maryland), Huang, L.X. (NORC) “Cigarette Taxes and Teen Smoking: New Evidence from Panels of Repeated
Cross-Sections”. April 15, 1998.
146.
In this paper, we
estimate the causal relationships between cigarette taxes, maternal smoking
behaviour, and birth outcomes. We are
the first to show that pregnant women are responsive to changes in cigarette
tax rates. The smoking participation
price elasticity is roughly –0.50. This
estimate appears to be robust to the inclusion of detailed controls for
mother’s characteristics as well as health habits, plus controls for
cross-border shopping and state clean indoor air restrictions. We are also able to show that increases in
cigarette tax rates have a beneficial impact on mean birth weight.
. . .
To put these results into
perspective, consider the impact on maternal smoking from a recent bill
proposed by Senator John McCain of Arizona that would raise cigarette taxes by
$1.10 over a period of years. To
simplify the problem, we will assume the tax hike happens in 1 year. In 1982-4 dollars, the $1.10 tax hike would
increase taxes by (1.10/1.622)=67.8 cents per pack. Using the results from model (3) from the smoking participation
probit, a 67.8 cent tax hike would reduce maternal smoking by about 5.5
percentage points, which is a 32% reduction in smoking. Using the results from model (3) in the low
birth weight probits from Table 3, the tax hike will reduce low birth rates by
.32 percentage points which is a 5% reduction.
The smaller size of the impact of taxes on birth outcomes is not
surprising given the fact that taxes can only alter the behavior of the 17% of
pregnant women who smoke. (p.152)
Evans, W.N., Ringel,
J.S. “Can Higher Cigarette Taxes
Improve Birth Outcomes?” Journal of Public Economics 1999; 72: 135-154.
147.
Nearly every study finds
smoking declines in the face of higher taxes and/or prices but the results do
vary across surveys. (p.11)
. . .
Our best estimate is that
the elasticity of demand in the short run is around –0.30 to –0.50, with
roughly half of any demand change coming from a drop in smoking
participation. Long-term elasticities
may however be 1.75 times short-run values. (p.18)
Evans, W.N. (Department of Economics,
University of Maryland), Ringel, J.S. (Jeanne S. Ringel, Department of
Economics, Louisiana State University), Stech, D. (Department of Economics,
University of Maryland) "Tobacco
Taxes and Public Policy to Discourage Smoking," November 6, 1998.
148.
For all respondents, the
models estimated a prevalence price elasticity of –0.15 and a consumption price
elasticity of –0.10, yielding a total price elasticity estimate of –0.25. Therefore, a 50% price increase could cause
a 12.5% reduction in the total U.S. cigarette consumption, or approximately 60
billion fewer cigarettes smoked per year.
In the age-specific model, younger smokers were more likely than older
smokers to quit smoking, and after controlling for income, education, and other
nonprice variables, Hispanic smokers and non-Hispanic black smokers were more
likely than white smokers to reduce or quit smoking in response to a price
increase. This pattern was consistent
for all age groups. Among both
non-Hispanic blacks and Hispanics, smokers aged 18-24 years were substantially
more price-responsive than smokers aged greater than or equal to 40 years. Lower-income populations also were more
likely to reduce or quit smoking than those with higher incomes. The total price elasticity was –0.29 for
lower-income persons compared with –0.17 for higher income persons.
Farrelly, M.C, Bray,
J.W. “Response to Increases in
Cigarette Prices by Race/Ethnicity, Income, and Age Groups – United States,
1976-1993,” Morbidity and Mortality Weekly Report 1998; 47(29): 605-609.
149.
Based on these findings,
a ten per cent increase in the relative price of cigarettes (over and above
inflation) would likely result in a seventeen per cent decrease in cigarettes
consumed per capita by 15-19 year olds, a fourteen per cent decrease in
smoking, and a six per cent decrease in consumption per smoker. (p.6)
Ferrence, R.G., Garcia,
J.M., Sykora, K., Collishaw, N.E., Farinon, L.
“Effects of Pricing on Cigarette Use Among Teenagers and Adults in
Canada 1980-1989.” Addiction Research
Foundation, February 1991.
150.
Trend data indicated a
sharp drop in California cigarette consumption coincident with the tax
increase. Time-series regression
analyses support this observation, and suggest that a 5% to 7% decline in
consumption is attributable to the tax increase. (p.867)
Flewelling, R.L., Kenney,
E., Elder, J.P., Pierce, J., Johnson, M., Bal, D.G. “First-Year Impact of the
1989 California Cigarette Tax Increase on Cigarette Consumption,” American
Journal of Public Health 1992; 82(6): 867-869.
151.
Taxation, however, could
have more substantial effects.
Estimates of the price elasticity of demand (@ -0.45) indicate that a 10% increase in the price
of cigarettes will lower consumption by 4.5%. This effect becomes more pronounced in the long run. (p.487)
Fujii, E.T. “The Demand for Cigarettes: Further Empirical Evidence and its
Implications for Public Policy,” Applied Economics 1980; 12: 479-489.
152.
With respect to price we
find evidence of a phenomenon first noted, to our knowledge, by Douglas (1998):
higher current price is a predictor of lower smoking prevalence, but a higher
previous-period price shows up as a strong positive predictor of
prevalence. (p.12)
Galbraith, J.W., Kaiserman, M. “The Response of
Youth Smoking Prevalence to Price:
Evidence from the Youth Smoking Survey.” 1999.
153.
Full sample estimates of
the short-run elasticities of taxed and total consumption with respect to the
legal price are –1.01 and 0.40 respectively. (p.288)
Galbraith, J.W.,
Kaiserman, M. “Taxation, Smuggling and Demand for Cigarettes in Canada: Evidence from Time-Series Data,” Journal
of Health Economics 1997; 16: 287-301.
154.
Manipulation of the price
of tobacco products has proven to be one of the most effective tools in tobacco
control. (p.95)
Goodyear, M.D.E. “Death
or Taxes? An Examination of Recent Changes in Tobacco Taxation Policy in
Canada,” Canadian Respiratory Journal 1994; 1(2): 95-103.
155.
The benefits of quitting
in terms of extra length and quality of life are very significant and are in
addition to the utility gained from goods and services that can be bought with
the money that quitters save. With a
fifty per cent increase in excise about 34,000 discounted life years would be
saved. The money saved would be about
$800 per quitter per year. It is quite
clear that the benefits overwhelmingly exceed the cost. (p.790)
Goss, J., “An Economist’s
Rationale for Government Intervention to Reduce the Consumption of Cigarettes,”
In: Durston, B., Jamrozik, K., ed. Tobacco
& Health 1990: The Global War.
Proceedings of the Seventh World Conference on Tobacco and Health. 1st-5th April 1990.
Perth, Western Australia, Australia.
1990. pp.789-793.
156. “The Government’s anti-tobacco strategy will help improve the health of
Canadians by discouraging smoking,” said Minister Martin [Finance Minister Paul
Martin]. “By increasing taxes sharply
and introducing a new tax structure for tobacco, we are taking important steps
now and positioning ourselves to take further steps as need be.” (pp.1-2 of
internet version)
Government of Canada “Government Announces Comprehensive Strategy to
Discourage Smoking” [news release] April 5, 2001. Downloaded September 23,
2001, www.fin.gc.ca/news01/01-039e.html
157.
The long-run impacts of
an increase in the excise tax rate should, however, be considerably more
substantial. Given the evidence that
individuals are unlikely to initiate smoking after age 21, it is quite possible
that the cohort of young persons who do not begin to smoke as a result of the
tax increase would never become regular smokers. If the tax increase is maintained in real terms, it would
continue to discourage smoking participation by successive generations of
youths. Thus, it would gradually impact
the smoking levels of older age groups as the smoking-discouraged cohorts move
through the age spectrum. As a
consequence, over a period of several decades, aggregate smoking and its
associated detrimental health effects would decline substantially. (p.486-487).
Grossman, M., “Taxation
and Cigarette Smoking in the United States,” In: Forbes, Frecker, Nostbakken,
ed., Proceedings of the Fifth World Conference on Smoking and Health. Canadian Council on Smoking and Health. Ottawa. Volume 1. 1983. pp.483-487.
158.
[O]ver 800,000 premature
deaths in the cohort of Americans 12 years and older in 1984 would be averted
if the Federal excise tax on cigarettes were restored to its real value in
1951. (p.1193)
. . .
The principal message of
the above findings is that an increase in the Federal excise tax rate on
cigarettes is a potent policy to curtail smoking. This is because teenagers are more responsive to changes in the
price of cigarettes than adults and because the price elasticity of smoking
participation is much larger than the price elasticity of the quantity smoked
by smokers. These factors mean that
tendencies for smokers to compensate for reduction in the number of cigarettes
consumed by switching to higher tar and nicotine brands, inhaling more deeply,
or reducing idle burn can be ignored in evaluating the impact of excise tax
changes. More importantly, the large
teenage smoking participation elasticity implies that excise tax increases are
very effective tools to prevent the onset of an habitual behaviour. (p.1199)
Grossman, M. “Health Benefits of Increases in Alcohol and
Cigarette Taxes,” British Journal of Addiction 1989; 84: 1193-1204.
159.
Teenage cigarette smoking
is sensitive to the price of cigarettes.
The most recent research would reduce the number of teenagers who smoke
by 7%. If the proposed 43-cent hike in
the Federal excise tax rate on cigarettes contained in the Hatch-Kennedy Bill
were enacted, the number of teenage smokers would fall by approximately 16%. This translates into more than 2.6 million
fewer smokers and more than 850,000 fewer smoking-related premature deaths in
the current cohort of 0 to 17-year olds.
Adjusted for inflation, the current 24 cent-a-pack tax costs the buyer
about half of the original cigarette tax of 8 cents imposed in 1951. A substantial tax hike would curb youth
smoking; this strategy should move to the forefront of the antismoking
campaign. (p.291)
…
We found that a 10%
increase in price would lower the number of youthful smokers by 7%, a somewhat
smaller effect than the 12% projected in the 1981 study. Consumption among smokers, however, would
decline by 6%, which is three times larger than the decline projected in the
1981 study. (p.295)
Grossman, M., Chaloupka,
F.J. “Cigarette Taxes: The Straw to Break the Camel’s Back,” Public Health
Reports 1997; 112(4): 290-97.
160.
We examine the
effectiveness of several cigarette control policies in discouraging smoking
among people aged 12-17 in the United States.
. . .
We found large price
effects: a 10% increase in price would lower the number of young smokers by 7%
and would lower consumption among smokers by 6%. (p.697)
. . .
If this 15-cent tax
increase is fully passed on to consumers, the price of a pack of cigarettes
would rise by approximately 8%.
According to our estimates, this would result in almost 1 million fewer
smokers in the current cohort of 0 to 17-year olds and over 300 000 fewer
smoking-related premature deaths in this cohort. Larger price increases would result in even larger reductions in
the number of young smokers and the number of premature deaths. . . .
These are short-run
effects. A tax or price increase would,
if it were maintained in real terms or adjusted for inflation, continue to
discourage smoking by successive generations of young people and would gradually
affect the smoking rates of older cohorts as those discouraged from smoking
move through the age spectrum.
Accordingly, the effect would be much greater in the long run. (p.698)
Grossman, M., Chaloupka,
F.J., “Price, Tobacco Control Policies and Smoking Among Young People in the
United States,” In: Lu, R., Mackay, J, Niu, S., Peto, R. ed., Tobacco: The
Growing Epidemic. Proceedings of the
Tenth World Conference on Tobacco or health. 24-28 August 1997, Beijing, China.
161.
The demand elasticities
for youth participating in smoking are larger than adult smoking participation
elasticities. The relevant figures are
–1.20 for youths aged 12-17, 1.74 for 20-25 years olds, -.44 for 26-35 year
olds, and -.15 for persons above the age of 35. Because of its effect in discouraging teenage smoking
participation, a tax increase that is maintained in real terms over a period of
several decades could decrease aggregate smoking substantially. (p.216)
Grossman, M., Sindelar,
J.L., Mullahy, J., Anderson, R. “Alcohol
and Cigarette Taxes,” Journal of Economic Perspectives 1993; 7(4):
211-222.
162. I find that the most important policy determinant of youth smoking,
particularly among older teens, is prices.
Prices
are a significant and sizeable determinant of smoking by older teens in all
three data sets, although the estimated price elasticity varies
significantly. On the other hand, price
does not appear to be an important determinant of smoking by younger teens.
(p.i)
Gruber, J. “Youth Smoking in
the U.S.: Prices and Policies” Working Paper 7506. National Bureau of Economic
Research, Cambridge, MA. January 2000.
163. [W]e document that price is a powerful determinant of smoking for high
school seniors; using state fixed effects models on data for the 1991-1997
period we estimate an elasticity of smoking participation of –0.67, which
suggests that the drop in cigarette prices in the early 1990s can explain 26%
of the subsequent upwards smoking trend for seniors. (p.i)
Gruber,
J., Zinman, J. “Youth Smoking in the U.S.: Evidence and Implications” Working
Paper 7780. National Bureau of Economic
Research. Cambridge, Massachusetts.
July 2000.
164.
However, the prevalence
of smoking was greater in the provinces where tobacco taxes had been cut than
in those where they had not, and this difference increased from 2.0% at the
beginning of the survey to 3.4%, by the end.
In addition, rates of starting cigarette smoking were higher and smoking
quit rates were lower in the provinces where taxes had been cut than in those
where taxes had not been cut.
Conclusion: Although
smoking rates are declining in Canada, tobacco tax cuts appear to have slowed
the rate of decline by inducing more nonsmokers to take up smoking and leading
fewer smokers to quit.(p.187)
Hamilton, V.H., Levinton,
C., St-Pierre, Y., Grimard, F. “The Effect of Tobacco Tax Cuts on Cigarette
Smoking in Canada,” The Canadian Medical Association Journal 1997; 156:
187-191.
165.
3. An immediate doubling
of the current U.S. federal excise tax on cigarettes would deter approximately
1.5 million adults and 0.7 million teenagers from cigarette smoking.
When total cigarette
consumption declines in response to an increase in retail cigarette prices, two
different phenomena are taking place.
First, continuing cigarette smokers may reduce the number of cigarettes
consumed. Second, the number of
cigarette smokers may decline. The
latter phenomenon reflects quitting by adult smokers and, most importantly,
deterrence of new smoking by teenagers.
(p.118)
. . .
4. An increase in the
federal cigarette tax would not have unduly regressive consequences
An increase in cigarette
taxes, it had been argued, is regressive because cigarette smokers come
predominantly from lower income groups.
The argument is incorrect for many reasons. First, the very poorest groups in the U.S. have lower smoking
rates than the middle income groups.
Second, although higher income men have lower smoking rates than middle
income men, the prevalence of smoking actually increases with income among
women. Third, many of the supposedly
low income smokers are teenagers and young adults, who may be only temporarily
poor. The younger age group, moreover,
has the most to gain, with respect to the health consequences of smoking, from
an increase in federal excise taxes.
Harris, J.E. “Increasing the Federal Excise Tax on
Cigarettes,” Journal of Health Economics 1982; 1: 117-120.
166.
My main conclusions are
as follows:
. . .
7. During the 1981-1986,
per capita consumption of cigarettes declined 15 percent. The increase in cigarette prices was
probably the main cause of the decline.
8. The decline in
cigarette use reflected mostly a decrease in the number of cigarette smokers
rather than in the amount smoked by continuing users. The evidence supports the hypothesis that price increase do not
induce smokers to cut down on the number of cigarettes. Instead, they either induce existing smokers
to quit or prevent potential smokers from starting.
. . .
10. Who cuts down on
cigarettes, who quits, and who fails to start are critical questions in
assessing the quantitative effects of a cigarette tax increase on the health of
the population. It is likely that, as a
result of the price-induced decline in cigarette consumption during 1982-1985,
about 100,000 additional persons will survive to age sixty-five. (p.88)
Harris, J.E., “The 1983
Increase in the Federal Cigarette Excise Tax,”
In: Tax Policy and the Economy.
Vol. 1. Cambridge (MA): MIT Press, 1987: 87-111.
167.
Figure 3 predicts that,
with no Federal excise tax increase, the percentage of adults who smoke will
drift downward from its 1993 level of 25.6 percent to a 1999 level of 22.0
percent. With a $1.76/pack tax
increase, by contrast, the prevalence of smoking will fall to 18.6 percent by
1999. The lower prevalence in the tax-hike
scenario translates into 6.7 million fewer adult cigarette smokers by
1999. (p.7 of internet printout)
. . .
The dashed lines compare
the predicted effects of two different scenarios: a baseline scenario with no
further Federal tax hikes; and an alternative scenario in which the Federal tax
rises from $0.24 to $2.00 per pack on January 1, 1995. Under the baseline no-tax scenario,
consumption per smoker will drift slightly downward toward 28.1 cigarettes per
day in 1999. Under the tax-hike
scenario, consumption per smoker will fall to 23.9 cigarettes per day in 1999.
(p.8 of internet printout)
. . .
With no further Federal
tax increase, per capita consumption will drift downward to 2,257 per adult in
calendar 1999. With a $1.76/pack one
time tax in 1995, per capita consumption will fall to 1,623 cigarette per adult
– a level not seen in the United States since the mid 1930s. (p.9 of internet
printout)
Harris, J.E. “A Working Model for Predicting the
Consumption and Revenue Impacts of Large Increases in the U.S. Federal
Cigarette Excise Tax.” Massachusetts
Institute of Technology and Massachusetts General Hospital. July 1, 1994. Downloaded July 27, 2000,
http://www.mit.edu/people/jeffrey/workingmodel.html
168.
We studied the
relationship between current cigarette smoking and price among 34145
respondents, aged 15-29 years, to the 1992-1993 Tobacco Use Supplements to the
Current Population Survey. The price
elasticity of current smoking varied inversely with age: -0.831 (S.E. 0.402)
for ages 15-17; -0.524 (S.E. 0.256) for ages 18-20; -0.370 (S.E. 0.188) for
ages 21-23; -0.202 (S.E. 0.175) for ages 24-26; and –0.095 (S.E. 0.157) for
ages 27-29. In response to higher
prices, older youth were more likely to reduce the number of cigarettes smoked
per day than to quit entirely. Among
15-17 year olds, smoking cigarettes ‘some days’ was more sensitive to price
than smoking ‘every day’. Cigarette
smoking was inversely related to the prices of premium brands, but not discount
brands. (p.81)
. . .
Our findings suggest that
nicotine addiction is acquired and reinforced over an extended time period,
starting in the teenage years and continuing at least through the mid-to-late
20s. Each successive age group in our
cross-sectional analysis gives us a different snapshot along this continuum of
increasing addiction. In a young
experimenter, whose ‘stock of addictive capital’ is relatively low, an increase
in price can result in an abrupt, permanent shift to a new, non-smoking lifetime
trajectory. As the smoker’s addictive
stock grows, however, an increase in price is more likely to cause only a
marginal reduction in the number smoked.
At the youngest ages, the impact of a change in price may also be
amplified by bandwagon effects. (pp.83-84)
Harris, J.E., Chan,
S.W. “The Continuum-of-Addiction: Cigarette Smoking in Relation to Price Among
Americans Aged 15-29,” Health Economics 1999; 8(1): 81-86.
169.
During 1990-1992, taxable
per capita consumption of cigarettes by adults declined 6.4% in Massachusetts,
11.0% in California, and 5.8% in the 48 remaining states and the District of
Columbia combined (Table 1). In
Massachusetts, from 1992 (the year before implementation of the petition) to
1996, taxable per capita consumption declined by 19.7% (from 117 packs to 94
packs) (Table 1); in California and the remaining states, per capita
consumption declined by 15.8% and 6.1%, respectively. (p.967)
. . .
Increases in the price of
cigarettes can reduce per capita consumption and the prevalence of
smoking. In Massachusetts, however, the
tax-induced increase in cigarette price was soon offset b coincidental
national, industrywide price reductions that began during the spring of
1993. While real cigarette prices
returned to pre-1993 levels, per capita consumption in Massachusetts continued
to decline. This finding suggests that
a tax increase combined with an antismoking campaign can be more effective in
reducing per capita consumption than a tax increase alone (p.970; this
quotation from p.970 is from an Editorial Note accompanying the article)
Harris, J.E., Connolly,
G.N., Brooks, D., Davis, B. “Cigarette
Smoking Before and After an Excise Tax Increase and an Antismoking Campaign:
Massachusetts, 1990-1996,” Morbidity and Mortality Weekly Report 1996;
45(44): 966-970.
170. Action Step:
Increase the cost of tobacco.
Tax policy is the most effective way to address
tobacco consumption. (p.24)
. . .
Recommendation 2:
i) Increase provincial cigarette taxes (especially
on Roll Your Own).
ii) Lobby the federal government to improve the
Federal Export Tax on tobacco. (p.26)
Heart and Stroke Foundation
of B.C. & Yukon; Canadian Cancer Society, B.C. and Yukon Division; B.C.
Lung Association. “B.C. – Leading the Pack on Tobacco: A Plan to Put B.C. at
the forefront of tobacco control in Canada; A Submission to the Government of
British Columbia” 1996.
171.
Another part of the
coalition’s strategy highlighted California’s Proposition 99, which led to a
drop in smoking by twice the national average since its 25-cent cigarette tax
had gone into effect in 1989. A similar
drop in Massachusetts was projected to result in 80 000 fewer smokers in the
first year alone. (p.970)
Heiser, P.F., Begay,
M.E. “The Campaign to Raise the Tobacco
Tax in Massachusetts,” American Journal of Public Health 1997; 87(6): 968-973.
172.
The findings from this
study show that Proposition 99 was effective in reducing cigarette consumption.
(p.32)
. . .
To sustain the effect of
cigarette taxes, it would be appropriate to increase the cigarette tax
periodically, or to assess them on an ad valorem basis. (p.33)
. . .
To achieve greater
results in reducing cigarette consumption, the Federal government should take a more aggressive role to impose
additional Federal tax on cigarettes. (p.33)
. . .
In 1988, California
voters enacted Proposition 99, increasing the tax on cigarettes by 25 cents per
pack, effective January 1989. Monthly
sales data reported by the California State Board of Equalization between 1984
and 1991, adjusted for seasonal variation and time trend, show that consumption
of cigarettes in January 1989 was about 25 percent less than would have been
expected in the absence of the tax. By
December 1989 consumption was reduced to 9.5 percent below the pre-Proposition
trend, and amount sustained throughout 1991.
Additional taxation and a different form of taxation on cigarettes may
further be considered. (p.36)
Hu, T.-W., Bai, J.,
Keeler, T.E., Barnett, P.G., Sung, H.-Y., “The Impact of California Proposition
99, A Major Anti-Smoking Law, on Cigarette Consumption,” Journal of Public
Health Policy; 1994; 15(1): 26-36.
173.
The higher prices from
Proposition 99 reduced cigarette consumption by 8-10% in the short run and
10-13% in the long run. The media
campaign had a significant effect in further reducing cigarette consumption, though
the effects of that campaign are substantially weaker than those of the tax
increase. (p.S34)
Hu, T.-W., Keeler, T.E.,
Sung, H.-Y., Barnett, P.G. “The Impact
of California Anti-Smoking Legislation on Cigarette Sales, Consumption, and
Prices,” Tobacco Control 1995; 4 (suppl 1): S34-S38.
174.
Conclusions. Both
taxation and anti-smoking media campaigns are effective means of reducing
cigarette consumption. The strength of
those effects, however, is influenced by the magnitude of the taxes and the
amount of media campaign expenditures. (p.1218)
. . .
The time-series analysis,
based on cigarette sales data in California between 1989 and 1992, indicates
that both the 25-cent-per-pack state tax increase and the anti-smoking media
campaign were statistically significant in reducing cigarette consumption. As measured by both relative elasticities
and absolute effects, the increase in the state tax reduced cigarette
consumption more than the media campaign did.
(p.1222)
Hu, T.-W., Sung, H.-Y.,
Keller, T.E. “Reducing Cigarette
Consumption in California: Tobacco
Taxes vs. an Anti-Smoking Media Campaign,” American Journal of Public Health
1995; 85(9): 1218-22.
175. The price of tobacco is perhaps the single largest factor in influencing
short term consumption patterns. Even
more important, price has been shown to play a very large role in determining
how many young people will start smoking, thus profoundly influencing long-term
consumption trends. The decisions
governments make with respect to tobacco taxation are never “neutral”, as
anything that increases or decreases the affordability of tobacco will be
reflected in total consumption. The
UICC recommends that taxes on all tobacco products be increased regularly and
significantly. (p.1)
International Union Against
Cancer, “Tobacco Taxation and Price Policies” UICC Tobacco Control Fact Sheet
4. March 1993.
176. Based on the review of New Zealand tobacco
taxation and control measures, the most important determinants of tobacco
consumption are the price of tobacco products relative to other products and
the average disposable income of consumers.
If consumer purchasing power increases, either because of the price of
tobacco falls relative to other goods and services or because of an increase in
real earnings, then tobacco consumption will increase. The evidence of this relationship is
strong. (p.42)
James, D.
“A Review of Tobacco Taxation”
Prepared for the Public Health Commission.
New Zealand Institute of Economic Research (inc.). February 28, 1995. Wellington, New Zealand.
177.
Tax increases are the
single most effective intervention to reduce demand for tobacco. Our review of numerous studies from high
income countries and several studies from low income and middle income
countries indicates that higher tobacco prices significantly and consistently
reduce tobacco use. A price increase of
10% would reduce smoking by about 4% in high income countries and by about 8%
in low income and middle income countries.
The evidence indicates that young people, people on low incomes, and
those with less education are more responsive to price changes. (p.359)
. . .
It is important to note
the experience of Canada, which reduced its tax rates as an attempt to counter
smuggling. The result was that
consumption rose, especially among youths, and revenues fell. (p.361)
Jha, P., Chaloupka, F.J.,
“The Economics of Global Tobacco Control,” British Medical Journal 2000;
321: 358-61.
178.
Evidence from countries
at all income levels shows that price increases on cigarettes are highly effective
in reducing demand. Higher taxes induce
some smokers to quit and deter others from starting. They also reduce the number of ex-smokers who return to
cigarettes and reduce consumption among continuing smokers. On average, a price rise of 10 percent on a
pack of cigarettes would be expected to reduce demand for cigarettes in the
short term by about 4 percent in high-income countries and by about 8 percent
in low-and middle-income countries, where lower incomes tend to make people
more responsive to price changes.
Long-run price responsiveness is estimated to be twice as high. Tax increases that would raise the real
price of cigarettes by 10 percent worldwide would cause at least 40 million
smokers alive in 1995 to quit, thus preventing a minimum of 10 million
tobacco-related deaths. The modeling
assumptions on which this result is based are deliberately conservative, and
these figures are therefore minimum estimates. (p.5 of internet version)
Jha, P., de Beyer, J.,
Heller, P.S. “Tobacco Control - Death
and Taxes: Economics of Tobacco Control,” Finance and Development 1999;
36(4), downloaded August 21, 2000,
http://www.img.org/external/pubs/ft/fandd/1999/12/jha.htm.
179.
At 1986 values the
estimated price elasticity of per capita demand is –0.562. This figure is towards the upper end of
estimates from previous studies. . . .
However these studies are based on samples which do not include the
years 1981 to 1986, a period which, as a result of large tax increases, has
seen an unusual degree of volatility in cigarette prices.
. . .
On the basis of these
estimates, it appears that participation may be less sensitive to price changes
than smokers’ demand, with an estimated elasticity of participation of –0.192
and of demand of –0.370. In other words
a 10 percent increases in the price of cigarettes would be expected to reduce
per capita demand by around 5.6 percent, and of this 1.9 percent would be a
reduction in participation while 3.7 percent would be due to the fall in
smokers’ demand. (pp.138-139)
Jones, A., “The UK Demand
for Cigarettes 1954-1986, A Double-Hurdle Approach,” Journal of Health Economics 1989;8:133-141.
180.
To give some idea of the
orders of magnitude involved, with a price elasticity of –0.18, a 10p increase
in duty fully passed on to the consumer would reduce consumption by 1.8%, or by
2.5 cigarettes per week for a smoker on 20-a-day. Even on the higher official estimate the reduction in consumption
would be around 4.%, or 6 cigarettes per week. (p.1231)
Jones, A., Posnett, J.,
“The Revenue and Welfare Effects of Cigarette Taxes,” Applied Economics 1988;20:1223-1232.
181.
Conclusions
It is clear from existing
studies, that price has a significant impact on the consumption of tobacco
products, in particular amongst young people.
A coherent tobacco price
policy which would ensure a programme of regular price increases (superior to
the rate of inflation), should therefore be a major component of any tobacco
control policy. (p.7)
Joossens, L., Naett, C.,
Howie, C. “Taxes on Tobacco Products: A Health Issue” Brussels: European Bureau for Action on Smoking
Prevention, December 1992.
182. Results. In
California, a $0.50 tax increase and price elasticity of –0.40 would result in
about 8389 QALYs [quality adjusted life years] (95% confidence interval
[CI]=4629, 12113) saved the first year.
Greater benefits would accrue each year until a steady state was reached
after 75 years, when 52136 QALYs (95% CI=38297, 66262) would accrue each year. Higher taxes would produce even greater
health benefits.
Conclusions. A tobacco excise tax may be among a few
policy options that will enhance a population’s health status while making
revenues available to government.(p.239)
Kaplan, R.M., Ake, C.F.,
Emery, S.L., Navarro, A.M. “Simulated Effect of Tobacco Tax Variation on
Population Health in California” American Journal of Public Health 2001;
91(2): 239-244.
183.
This work analyses the
effects of prices, taxes, income, and anti-smoking regulations on the
consumption of cigarettes (a 25-cent-per-pack state increase in 1989 enhances
the usefulness of the exercise).
Analysis is based on monthly time-series data for 1980 through
1990. Results show a price elasticity
of demand for cigarettes in the short run of –0.3 to –0.5 at mean data values,
and -0.5 to -0.6 in the long run. We
find at least some support for two further hypotheses: that antismoking
regulations reduce cigarette consumption, and that consumers behave
consistently with the model of rational addiction. (p.1)
Keeler, T.E., Hu, T.-W.,
Barnett, P.G., Manning, W.G. “Taxation,
Regulation, and Addiction: A Demand Function for Cigarettes Based on
Time-Series Evidence,” Journal of Health Economics 1993; 12: 1-18.
184.
This study analyzes the
interactive effects of oligopoly pricing, state taxation, and anti-smoking
regulations on retail cigarette prices by state, using panel data for the 50 US
states between 1960 and 1990. The
results indicate that cigarette producers do price-discriminate by state,
though the effect is not large relative to the final retail price. There are two further results: (1) state
taxes are more than passed on – a 1-cent state tax increase results in a price
increase of 1.11 cents, and (2) sellers offset state and local anti-smoking
laws with lower prices, thereby blunting effects of the regulations. (p.499)
Keeler, T.E., Hu, T.-W.,
Barnett, P.G., Manning, W.G., Sung, H.
“Do Cigarette Producers Price-Discriminate by State? An Empirical Analysis of Local Cigarette
Pricing and Taxation,” Journal of Health Economics 1996; 15: 499-512.
185.
With these lessons in
mind, the ACS [American Cancer Society] Tobacco Control Task Force favoured a
tax initiative for three reasons.
(1) Economic analyses have documented price elasticity,
that is, increasing the price of cigarettes led to decreased cigarette consumption
(a sales drop of 0.75 packs per capita for each 1-cent increase in cigarette
taxes). Some studies indicate that
teenagers are at least as cost sensitive as adults, and perhaps more so.
(2) The tax would generate more than $100 million
dollars annually for a new Health Protection Fund to create statewide tobacco
control programmes (including an anti-smoking media campaign and health
education for schoolchildren).
(3) Over the years, the traditional state legislative
process had rejected proposals to raise the cigarette excise tax. In Massachusetts, stable excise taxes for
almost a decade left room for upward movement. (p.221)
Koh, H.K. “An Analysis of the Successful 1992
Massachusetts Tobacco Tax Initiative,” Tobacco Control 1996; 5: 220-225.
186. A cigarette tax is different because it helps almost everyone. A substantial cigarette tax would benefit
not only the entire nation by helping to provide more accessible health care at
a lower cost, but it would also benefit particular groups; smokers would
benefit because it would help them to quit; nonsmokers would benefit because
the air they breathe would have less harmful smoke; children would benefit
because fewer kids would get hooked on cigarettes; and – if the tax is done
right – even tobacco farmers could benefit.
The only real losers would be the tobacco industry, which has made its
profits by lying to the American people about the dangers of smoking. (p.3)
Koop, C.E. “A Tax That’s Good for You” World Smoking and Health
1994; 19(1): 3.
187.
It’s well-known that
though price hikes can reduce cigarette use, the impact is less than
proportionate: Economists say the price
elasticity of demand is about 0.4, which means a 10% rise in the real price of
smokers induces a 4% drop in consumption.
. . .
In the early 1980s,
Canada’s federal and provincial governments launched an assault on smoking with
outsize tax increases that boosted retail prices by 152% in real terms from
1982 to 1992.
The results were
gratifying: In that 10-year period, as
cigarette-tax revenues nationwide nearly quadrupled, per capita consumption
fell precipitously- 38% overall and nearly 60% among teenagers.
Koretz, G. “Big U.S. Tax Hike Should Hasten Smoking’s
Decline. . .and Might Stiffen Canadian Puffers’ Resolve to Quit, Too” Business
Week, May 30, 1994, p.26.
188. In 1989, we had success not only with the federal government but with
many provincial governments. The net
result is that there will be about 8% fewer smokers in Canada than would
otherwise have been the case. This
represents about 400,000 fewer people smoking and will eventually translate
into about 100,000 fewer tobacco-related deaths.
The
project cost is less than one dollar per tobacco-related death prevented. In numbers of future cancer cases alone,
this is clearly a breakthrough in prevention. (p.15)
Kyle, K. “Tax Increases Make Good Preventive Medicine” World Smoking
and Health 1990; 15(3): 14-16.
189.
This paper has
investigated the relative ability of two anti-smoking policies, taxes and
regulation, in inducing cigarette demand reductions and in providing incentives
to stop smoking (or not to start to).
The analysis was based on Canadian data at the provincial level for the
period 1980-1995. Our results showed
that cigarette demand responds to taxes (elasticity of –0.28), but not to
regulation, while the converse is true for the proportion of smokers in the
population. This suggests that both
policies are acting in a complementary fashion to influence the incidence of
smoking. (p.88)
Lanoie, P., Leclair,
P. “Taxation or Regulation: Looking for a Good Anti-Smoking Policy,” Economic
Letters 1998; 58: 85-89.
190.
Price on these results
appears to be the most powerful variable which governments can influence. The long-run price elasticity of –0.41 is
close to the elasticities reported from many annual studies and means that when
price rises 10 percent, sales fall by 4 percent, other factors being equal.
(pp.10-11)
Laugesen, M., Meads, C. “Advertising, Price, Income and Publicity
Effects on Weekly Sales in New Zealand Supermarkets,” Wellington, New Zealand.
1990.
191. Newspaper publicity about smoking and real
cigarette price were negatively associated, and real disposable income
positively associated with the amount smoked by those 25 and over. (p. 775)
Laugesen, M., Meads, C.,
“Cigarette Advertising, Price, Income, Publicity and Smoking Prevalence in
Youth Versus Older Age Groups, New Zealand, 1982-89,” In: Durston, B.,
Jamrozik, K., eds. Tobacco &
Health 1990: The Global War.
Proceedings of the Seventh World Conference on Tobacco and Health. 1st-5th
April 1990, Perth, Western Australia, Australia. 1990. pp.775-777.
192.
The central point
emerging from this study is that both Federal and State governments can use the
price variable as a control measure for reducing cigarette consumption. With an estimated price elasticity of -.81,
cigarette demand is sufficiently elastic to respond to sharp price
increases. For example, if the average
price of cigarettes is increased by 20 per cent, per capita consumption will
decline by approximately 41 packs - a significant response by any standard.
(p.33)
Laughhunn, D.J., Lyon,
H.L., “The Feasibility of Tax Induced Price Increases as a Deterrent to
Cigarette Consumption,” Journal of
Business Administration 1971;3(1):27-35.
193.
Tobacco taxes are a key
policy tool in government strategies to reduce the demand for tobacco
products. (p.600)
LeClair, K., “Taxing
Tobacco: Canada’s Recent Experience,” In:
American Cancer Society, American Medical Association, The Robert Wood
Johnson Foundation. 11th
World Conference on Tobacco OR Health.
Promoting a Future Without Tobacco.
Abstracts. Vol. 3. August,
6-11, 2000. Chicago, Illinois, USA,
p.600.
194. The price elasticity works out at –0.8, i.e. an increase in the
(nominal) cigarette price of one percent leads to an 0.8 p. cent reduction in
consumption and vice versa, other things being equal. (pp.360-361)
. .
.
Conclusions
Our
study suggests that cigarette consumption can effectively be influenced by
tobacco tax and, above all, by anti-smoking campaigns. (p.361)
Leu,
R. “The Effects of Cigarette Price and Anti-Smoking Publicity on Cigarette
Consumption in Switzerland” Revue d’Épidemiologie et de Santé Publique
1979; 27: 359-362.
195. Results. The model predicts that sustained tax increases have the potential
to substantially reduce the number of smokers and the number of premature
deaths, with the effects growing over time.
Indexing taxes to inflation stems erosion of the tax effect.
Conclusions. Tax hikes have the ability to
substantially affect smoking rates in the near term. These effects grow over time and lead to substantial savings in
lives and health care costs. (p.279)
Levy, D.T., Cummings, K.M., Hyland, A.
“Increasing Taxes as a Strategy to Reduce Cigarette Use and Deaths: Results of
a Simulation Model” Preventive Medicine 2000; 31: 279-286.
196.
A primary benefit of
tobacco taxes is that their administrative cost is low relative to the revenues
they generate. They are easy to collect
because during manufacturing most tobacco passes through a limited number of
physical locations.
. . .
However, in more
developed countries it appears that teenagers seen to be most sensitive to a
rise in price of tobacco products. This
sensitivity is probably due to the fact that teenagers are not usually habitual
smokers and that they generally have less disposable income than older smokers.
Accordingly, it is possible that price elasticities in developing countries
where income is low and there are fewer established smokers would be better
approximated by the estimates for teenagers rather than those for adults in
developed countries. (p.787)
Lewit, E.M., “Economics
of Tobacco in Developing Countries: Telling It Like It Is,” In: Durston, B.,
Jamrozik, K., eds. Tobacco &
Health 1990: The Global War.
Proceedings of the Seventh World Conference on Tobacco and Health. 1st-5th
April 1990, Perth, Western Australia, Australia. 1990. pp.785-787.
197.
An estimated 100,000
additional persons may live to the age of 65 as a result of doubling the
Federal cigarette tax in 1983. (p.1217)
. . .
Since excise taxes will
tend to increase the price of cigarettes, fluctuations in excise tax rates
should influence the demand for cigarettes and excise taxes increases should
reduce smoking. . . . Numerous attempts
have been made over the years to measure the price elasticity of demand for
cigarettes, with estimates ranging from –0.4 to –1.3. Miller (1982) suggested that –0.7 was the midpoint of recent
studies and noted that the Tobacco Institute used that figure for its analyses
of cigarette tax effects. (p.1221)
. . .
In addition, the Omnibus Budget Reconciliation Act of 1985 imposed taxes of $0.24 per pound on snuff and $0.08 per pound on chewing tobacco. States als