the importance of economic data for tobacco control · 08/05/2018 · economic data for tobacco...

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


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


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


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


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


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


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


Oppositional Arguments

Tax Avoidance & Evasion

Tax Avoidance & Evasion Do NOT Eliminate Health Impact of Higher Taxes

Source: Schroth, 2014


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


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


Impact on the Poor

Tobacco & Poverty

Source: NCI & WHO 2016


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


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


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


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


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


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.

@tobacconomics

For more information:

http://www.tobacconomics.org

@tobacconomics

[email protected]

Thank You!

http://www.tobacconomics.org/

mailto:[email protected]

the importance of economic data for tobacco control · 08/05/2018 · economic data for tobacco...

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