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The Role of Economic Research in Accelerating Tobacco Control

Teh-wei HuProfessor Emeritus of Health Economics

University of California, Berkeley

To be presented at Tobacco Control Research in China Symposium October 19-21, 2011

Lijiang, Yunnan, China

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Overview

• Goal of the WHO Framework Convention on tobacco control

• How can economic research be used for tobacco control

• Future topics of economic research can accelerate tobacco control

• The way forward

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Goals of the WHO Framework Convention on Tobacco Control

-Interpreted in Economics-

• To reduce the demand and supply of tobacco products through government intervention

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How Can Economic Research be Used for Tobacco Control?

• To justify government intervention on tobacco control

• To reduce the demand for cigarettes

• To reduce the supply of tobacco products

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To Justify Government Intervention

• Economic cost of smoking

• Effective tobacco tax schemes

• Earmark part of tax revenue for tobacco control/health promotion

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Economic Cost of Smoking (in 2008 price)

Cost Estimate % of 2000

2000: RMB 50 billion (US$7.2 billion)

2003: RMB 119 billion (US$17.1 billion) 137%

2008: RMB 200 billion (US$ 28.9 billion) 300%

Yang, Sung, Mao, Hu (2011)

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Effective Tobacco Tax Scheme

• Specific excise tax is the most effective measure for tobacco control (avoid tax evasion and avoidance)

• China has only 0.06 RMB per pack• 2009 tax adjustment only changed ad

valorem tax rate at producer/wholesale price level

WHO (2010), Hi, Mao, Shi (2010)

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Earmark Part of Tax Revenue for Tobacco Control on Health Care

• More benefit than cost for tobacco control and improve equity for low income smokers

• Recent examples in Thailand, US, Australia, New Zealand, and HK (SAR)

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To Reduce the Demand for Cigarettes

• Through price (and tax) and quantitative relationships to predict cigarette consumption (and quantity)

• Predict government revenue changes

Mao, Hu, Sung (2008)

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Through Price (and tax) and Quantitative Relationships to

Predict Cigarette Consumption Change

• Price elasticity of the demand for cigarettes between -0.15 to -0.50 (one third responded to quitting and two thirds responded to the amount of reduction)

Mao, Hu, Sung (2008)

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Predict Government Revenue Change

• Increase RMB 1 per pack, government would increase

86 billion RMB (price elasticity at 0.15)

65 billion RMB (price elasticity at 0.50)

Hu, Mao, Shi, Chen (2008)

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To Reduce the Supply of Tobacco

• Help farmers to understand the costs and economic returns of alternative crops versus tobacco leaf

Revenue cost ratio:Tobacco 0.99Mulberry 4.00Fruit 2.00

Vegetable Oil1.70

Hu, Mao, Jiang, et al (2007)

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Future Topics of Economic Research that could Accelerate

Tobacco Control

• Study tobacco control on regional impact

• Study the impact of separating the China National Tobacco Company from the government ownership

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The Way Forward

• Translate economic research findings to top government policy makers

• Communicate findings to media professions

• If national tobacco tax reform is not possible, pilot tax experiments might be considered