TC Online Presentations. www.tobaccocontrol.com. Economics of Tobacco: Myths and Realities. Kenneth E. Warner, PhD Avedis Donabedian Distinguished University Professor of Public Health University of Michigan, USA November 7, 2002 . Key to the myths. TI = tobacco industry myth
TC Online Presentations
Economics of Tobacco:Myths and Realities
Kenneth E. Warner, PhD
Avedis Donabedian Distinguished University Professor of Public Health
University of Michigan, USA
November 7, 2002
TI = tobacco industry myth
TC = tobacco control community myth
Myth #1 (TI)(the industry’s favorite)
Tobacco is crucial to the economy. Without tobacco growing, cigarette manufacturing, and distribution and sale of tobacco products, a state’s or country’s economy will suffer job losses, falling tax revenues, and growing trade deficits.
A significant economic presence does not imply significant economic dependence.
Spending on tobacco is rarely important to an economy.
Money not spent on tobacco will be spent on other goods and services instead, thereby creating a comparable number of jobs.
Real costs = costs of transition to alternative products.
Given the addictiveness of tobacco, the transition necessarily occurs very slowly (cigarette consumption declining 1-2% per year in developed countries).
[Schelling, Preventive Medicine, 1986]
Tobacco imposes an enormous health care cost on society. Decreasing smoking will save billions of dollars in smoking-produced health care costs each year.
Smoking-produced illness does account for a significant share of health care costs, e.g., approximately 12% in the U.S. [Miller et al., Public Health Rep, 1998]
However, in the absence of smoking, the elderly population would grow, as would old-age chronic disease costs.
A large tax increase is dangerous because it will reduce government revenues by decreasing legal cigarette sales. This will result due to decreased smoking and increased smuggling of lower-priced cigarettes from neighboring states or countries.
Real cigarette prices & per capita
Cigarettes per capita
Price (1982/84 cents)
Realitywith regard to revenues...
Increased taxes invariably increase government revenues.
The percentage decline in cigarette consumption is smaller than the percentage increase in price that induces it.
Further, tax is only a fraction of price, so a given tax increase will cause a far smaller decrease in cigarette sales.
Federal cigarette tax rate &
cigarette tax revenue in the US
(billions of 1982/84 $)
Real cigarette tax rate per pack
Real cigarette tax revenue
Cigarette tax rate
Cigarette tax renenue
[Joossens and Raw, BMJ, 2000]
Even if a tax increase would raise government revenues and decrease smoking, it is fundamentally unfair because its burden would fall disproportionately on the poor.
Cigarette taxes are regressive.
A larger proportion of the poor smoke.
However, a tax increase may produce a progressive impact
because the rich decrease their smoking only slightly in response to a price increase
the poor decrease theirs substantially.
[Townsend et al., BMJ, 1994]