The Importance of Economic Data for Tobacco ControlFrank J. Chaloupka, University of Illinois at Chicago
Workshop on Tobacco Economics for Central and Eastern Europe
Marie Curie Institute, Warsaw, Poland, 8 May 20181
Overview
• Economic costs of tobacco use
• Impact of tobacco taxes on tobacco use
• Myths & Facts on economic “costs” of
tobacco control
• Cost-effectiveness of tobacco control
www.tobacconomics.org
@tobacconomics
Economic Costs of Tobacco Use
Why Study the Costs of Tobacco Use?
• To assess the economic impact of tobacco use on:
– Society
– Individuals
– Government
– Business/employers
• Economic cost estimates can help spur adoption of
effective tobacco control policies
– WHO “toolkit” for estimating economic costs
www.tobacconomics.org
Categories of Costs
• Direct costs: reduction in actual resources– Direct health care costs
• e.g. hospital, out-patient, drugs, etc.
– Other direct costs
• e.g. transportation to clinic, family members’ time providing
care
• Indirect costs: reduction in potential
resources– Lost productivity due to morbidity and premature
mortality
@tobacconomics
Categories of Costs
• External costs
– costs that tobacco users impose on others (e.g., costs
related to secondhand smoke)
• Internal costs
– costs paid for by tobacco users as a result of tobacco
use (e.g., out of pocket costs for health care to treat
diseases caused by smoking)
• “Internalities”
– internal costs resulting from information failures in the
market that can be thought of as external costs
www.tobacconomics.org
Smoking-Attributable Spending as Share of Total Health Expenditures, 2012, by Income Group and WHO Region
Source: Goodchild, et al., 2017@tobacconomics
Economic Costs of Smoking-Attributable Diseases as Share of GDP, 2012, by Income Group and WHO Region
Source: Goodchild, et al., 2017www.tobacconomics.org
Impact of Tobacco Taxes & Prices
on Tobacco Use
Cigarette Price & ConsumptionHungary, 1990-2011, Inflation Adjusted
Sources: EIU, ERC, and World Bank
0
100
200
300
400
500
600
700
13,000
15,000
17,000
19,000
21,000
23,000
25,000
27,000
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Price,
2011 F
orints
/Pack
Mill
ion S
ticks
Consumption, Million Sticks Price, 2011 Forints
@tobacconomics
Adult Smoking Prevalence & Price
Sources: Ministry of Health, Brazil; EIU; World Bankwww.tobacconomics.org
3.4
3.9
4.4
4.9
5.4
11
12
12
13
13
14
14
15
15
16
16
2006 2007 2008 2009 2010 2011 2012 2013
Pri
ce p
er
Pack,
2013 B
RL
Ad
ult
Sm
okin
g P
rev
ale
en
ce
Brazil, Inflation Adjusted, 2006-2013
Smoking Prevalence Price per Pack, 2013 BRL
0
50,000
100,000
150,000
200,000
2004 2005 2005 2005 2006 2006 2006 2007 2007 2007 2008 2008 2008 2009 2009 2009
Monthly Quit Line Calls, United States11/04-11/09
4/1/09 Federal Tax Increase
1/1/08 WI Tax Increase
@tobacconomics
Source: BRFSS, Tax Burden on Tobacco, 2010, and author’s calculations
y = 0.0283x + 43.083R² = 0.371
45
50
55
60
65
70
350 400 450 500 550 600 650 700 750 800 850
% E
ve
r S
mo
ke
rs W
ho
Have
Qu
it
Average price (in cents)
Cigarette Prices and CessationUS States, 2009
@tobacconomics
Source: Paraje, 2017
Cigarette Price & Youth Smoking Prevalence Chile, 2000-2015
www.tobacconomics.org
Affordability & Tobacco UseAdult Smoking Prevalence, Indonesia, 2001-2014
Sources: Euromonitor, EIU, World Bank, and Authors’ Calculations
30.00
31.00
32.00
33.00
34.00
35.00
36.00
0.035
0.045
0.055
0.065
0.075
0.085
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Adult S
mokin
g P
revale
nce
Rela
tive I
ncom
e P
rice,
100 p
acks
Affordability Smoking Prevalence
www.tobacconomics.org
Price, Consumption & Lung Cancer, France
Sources: Jha & Hill, 2012
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
1980 1985 1990 1995 2000 2005 2010
Year
Nu
mb
er/
ad
ult
/da
y a
nd
de
ath
ra
tes
50
100
150
200
250
300
Pri
ce
(%
re
lati
ve
to
19
80
) Lung cancer death rates per 100,000 (divided
by four): men age 35-44
Relative price
# cigarettes/adult/day
www.tobacconomics.org
Effectiveness of Tobacco Taxes
Chapter 4, Conclusion 1:
A substantial body of
research, which has
accumulated over many
decades and from many
countries, shows that
significantly increasing the
excise tax and price of
tobacco products is the
single most consistently
effective tool for reducing
tobacco use.
@tobacconomics
0
2
4
6
8
10
12
0
2
4
6
8
10
12
196
1
196
3
196
5
196
7
196
9
197
1
197
3
197
5
197
7
197
9
198
1
198
3
198
5
198
7
198
9
199
1
199
3
199
5
199
7
199
9
200
1
200
3
200
5
200
7
200
9
201
1
Ex
cis
e t
ax
re
ve
nu
e (
Bil
lio
ns o
f 2
01
2 R
an
ds
)
Ex
cis
e t
ax
pe
r p
ac
k (
co
ns
tan
t 2
01
2 R
an
ds
)
South Africa, 1961-2012
Excise tax per pack Excise revenue
Tobacco Taxes and Revenues
www.tobacconomics.org
Cigarette Tax and Tax RevenuesUkraine: 2008-2015
Average excise rate for cigarettes – increased 10-fold
Cigarette Tax Revenue – increased 6-fold
Source: Syvak and Krasovsky, 2017
3.5
5.5
7.5
9.5
11.5
13.5
15.5
17.5
19.5
21.5
25
75
125
175
225
275
325
2008 2009 2010 2011 2012 2013 2014 2015
Tax R
evenues,
Bill
ions
Cig
are
tte E
xcis
e T
ax, 1000 S
ticks
Average excise per 1000 cigarettes, UAH Tobacco excise revenue, bln UAH
@tobacconomics
The Laffer Curve – Argentina
Source: Tobacconomics, 2018
2016
2017
0
500
1000
1500
2000
2500
3000
3500A
dd
itio
na
l ta
x r
eve
nu
e (
mil
lio
n d
oll
ars
-IP
C m
arc
h
20
16
=1
00
)
Tax rate
www.tobacconomics.org
Oppositional Arguments
Tax Avoidance & Evasion
Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes
Source: Schroth, 2014
www.tobacconomics.org
Cook County Cigarette Tax and Tax Revenues - FY01-FY06
$0.15
$0.35
$0.55
$0.75
$0.95
$1.15
$1.35
$1.55
$1.75
2001 2002 2003 2004 2005 2006
Fiscal Year
Tax p
er
Pack
$25,000,000
$45,000,000
$65,000,000
$85,000,000
$105,000,000
$125,000,000
$145,000,000
$165,000,000
$185,000,000
$205,000,000
$225,000,000
Tax R
even
ues
Tax Revenues
Chicago tax rises
from 16 to 48 cents
Chicago tax up
to 68 cents, 1/1/06
Chicago smoking
ban, 1/16/06
Tax Avoidance & Evasion Do NOT Eliminate Revenue Impact of Higher Taxes
@tobacconomics
Illicit Cigarette Market Share& Cigarette Prices, 2012
Algeria
ArgentinaAustralia
Austria
Azerbaijan
Belarus
Begium
Bolivia
Bosnia
Brazil
Bulgaria
Cameroon
Canada
Chile
China
Colombia
Costa RicaCroatia
Denmark
Dominican Republic
Ecuador
Egypt
Estonia
Finland
France
Georgia
Germany
GreeceGuatemala
Hungary
India
Indonesia
IranIreland
IsraelItaly
JapanKazakhstan
Kenya
Latvia
Lithuania
Malaysia
Mexico
MoroccoNetherlands
New Zealand
Nigeria
Norway
Pakistan
Peru
Philippines
Poland
Portugal
South Korea
Turkey
Russia
Saudi Arabia
Serbia
Singapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
ThailandMacedonia
Tunisia
Romania
Ukraine
UAE
United Kingdom
USA
Uruguay
Uzbekistan
Venezuela
Vietnam
y = -0.0076x + 0.1752R² = 0.0496
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
45.00%
50.00%
0 2 4 6 8 10 12 14
Illic
it t
rad
e sh
are
as %
of
lega
l cig
aret
te c
on
sum
pti
on
Price USD
Source: NCI/WHO, 2016www.tobacconomics.org
• Corruption
• Weak tax administration
• Poor enforcement
• Presence of informal distribution
networks
• Presence of criminal networks
• Access to cheaper sources
Drivers of Illicit Tobacco
www.tobacconomics.org
Sources: NRC/IOM 2015; NCI/WHO 2016
Smuggling and Corruption, 2011
Algeria
Argentina
Australia
Austria
Azerbaijan
Belarus
Belgium
Bolivia
Bosnia
BrazilBulgaria
0.16
Canada
Chile
China
Colombia
Costa Rica
Croatia
Denmark
Dominican Republic
Ecuador
Egypt
Estonia
Finland
France
GeorgiaGermany
Greece
Guatemala
Hungary
India
Indonesia
Iran
Ireland
IsraelItaly
JapanKazkhstan
Kenya
Latvia
LithuaniaMalaysia
Mexico
Morocco Netherlands
New Zealand
Nigeria
Norway
Pakistan
Peru
Philippines
Poland
Portugal
South Korea
Romania
Russia
Saudi Arabia
SerbiaSingapore
Slovakia
Slovenia
South Africa
Spain
Sweden
Switzerland
Thailand
MacedoniaTunisia
Turkey
Ukraine
United Arab Emirates
United Kingdom
United States
Uruguay
Uzbekistan
Venezuela
Vietnam
y = -0.0131x + 0.2028R² = 0.0815
0
0.05
0.1
0.15
0.2
0.25
0.3
0.35
0.4
0.45
0.5
1 2 3 4 5 6 7 8 9 10
illic
it c
igar
ette
tra
de
volu
me
Transparency Index
Source: NCI/WHO, 2016
@tobacconomics
Figure 12 – Estimated Volumes of Cigarettes Consumed in the U.K. – Duty paid, illicit, and cross-border shopping, 2000-01 – 2013-14
Source: HM Revenue & Customs, 2014
@tobacconomics
Combating Illicit Tobacco Trade• Illicit trade protocol to the WHO FCTC
– Adopted November 2012; currently in process of being
signed/ratified; provisions calling for:
– Strong tax administration
• Prominent, high-tech tax stamps and other pack markings
• Licensing of manufacturers, exporters, distributors, retailers
• Export bonds
• Unique identification codes on packages
– Better enforcement
• Increased resources
• Focus on large scale smuggling
– Swift, severe penalties
– Multilateral/intersectoral cooperation
www.tobacconomics.org
Impact on the Poor
Tobacco & Poverty
Source: NCI & WHO 2016
www.tobacconomics.org
Who Pays & Who BenefitsTurkey, 25% Tax Increase
Source: Adapted from Önder & Yürekli, 2014
-35.3%
-20.4%
-18.5%
-2.2%
8.5% 9.7%
-36%
-31%
-26%
-21%
-16%
-11%
-6%
-1%
4%
9%
Change in Consumption Change in Taxes Paid
@tobacconomics
Who Pays & Who BenefitsChile, 25% Tax Increase
Source: Fuchs, et al., 2017
www.tobacconomics.org
Impact on the Poor
Need to consider overall fiscal system
• Key issue with taxes is what’s done with the
revenues generated by the tax
• Net financial impact on low income households
can be positive when taxes are used to support
programs targeting the poor
• Concerns about regressivity offset by use of
revenues for programs directed to poor
@tobacconomics
Impact on the Economy
Tobacco Control and Jobs
Industry-sponsored studies tell part of story:
• Focus on the gross impact:
• Tax increase, other tobacco control policies reduce tobacco
consumption
• Results in loss of some jobs dependent on tobacco
production
• Ignore the net impact:
• Money not spent on tobacco products will be spent on other
goods and services
• New/increased tax revenues spent by government
• Offsetting job gains in other sectors
@tobacconomics
Tobacco Taxes and Jobs
• Many published studies assess impact of
reductions in tobacco use from tax
increases and/or other tobacco control
measures:
• Variety of high, middle, and low income
countries
• Use alternative methodologies
• Generally find that employment losses in
tobacco sector more than offset by gains in
other sectors
www.tobacconomics.org
Tobacco Taxes and Jobs
Concerns about job losses in tobacco sector
have been addressed using new tax
revenues:
• Turkey, Philippines among countries that have
allocated tobacco tax revenues to helping
tobacco farmers and/or those employed in
tobacco manufacturing make transition to other
livelihoods
• Crop substitution programs, retraining programs
@tobacconomics
Smoke Free Air Policies & Economic Activity
• Industry and its allies argue that
comprehensive smoke-free air policies will
harm the hospitality industry as smokers are
deterred from frequenting bars and restaurants
• Extensive research shows that comprehensive
smoke-free air policies have no negative
impact, and often a positive impact, on
economic activity in the hospitality sector
www.tobacconomics.org
Tobacco Taxes and Small Businesses
• More recent argument that higher taxes will harm
convenience stores
• Huang & Chaloupka (2012)
• Number of convenience stores, by state, 1997-2009
• State cigarette tax rates and smoke-free air policies
• Economic conditions (income, unemployment, gas prices)
• Multivariate, fixed effects econometric models
• Find that higher taxes associated with increase in
convenience store business
• Likely due to spending on other products, overshifting of taxes
www.tobacconomics.org
Tobacco Control and Overall Economic Activity
• Chaloupka & Peck (2009)
• Adaptation of Murphy & Topel (2003) assessment of the
broader economic impact of medical research
• Accounts for increased life expectancy, improved productivity
resulting from improvements in health
• We estimated impact of reductions in cigarette smoking in the
U.S. in the 40 years following the 1964 Surgeon General’s
report
• Estimate that by 2004, increased economic activity by $300-
$700 billion; (equivalent to 2.4% - 5.7% of GDP)
@tobacconomics
Economic Impact ofTobacco Control
Major Conclusion
#7:
Tobacco control
does not harm
economies.
@tobacconomics
Summary
Tobacco tax increases and other effective tobacco
control measures make good economic sense:
• Not just long-term public health, but near-term
health and economic benefits
• Tobacco control will not harm economies
• Substantial impact in reducing health care
costs, improving productivity, and fostering
economic development.
Economic Impact of Tobacco Control
www.tobacconomics.org
46
Figure 17.3 Tobacco Control Policies and Cost Per Healthy Life-Year Gained, by WHO Region
Note: HLYG = healthy life-year gained.
Source: Based on calculations from World Health Organization CHOICE model, 2016.
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For more information:
http://www.tobacconomics.org
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Thank You!