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Section BSection B

A Look Ahead: Summary of Main Findings

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The Costs of Smoking

Presented by Dr. Hana Ross American Cancer Society The International Tobacco Evidence Network (ITEN)

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Perspectives for Costing

Society Most comprehensive perspective

Individuals and households

Public finances

Businesses and employers

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Classification of Costs

Direct costs: reduction in existing resources

Indirect or productivity costs: reduction in potential resources due to premature morbidity or mortality Includes lost wages due to time off from work

and lower quality of life (can be internal or external)

Internal costs (private): costs borne by the fully informed smoker

External costs (externalities): health and productivity losses to community due to secondhand smoke

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Healthcare Costs Attributable to Smoking

Calculate the smoking-attributable fraction of total costs Eliminate nonsmokers Eliminate diseases among smokers not caused by

smoking Subtract average health care costs for the population

Calculate the population-attributable risk from: The relative risk that smokers have of getting a

specific condition compared to nonsmokersor

The relative risk for those exposed to secondhand smoke (SHS) compared to those not exposed

The 2006 U.S. Surgeon General’s Report presents relative risks for exposure to SHS

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Tobacco Taxation

Presented by Frank J. Chaloupka, PhD University of Illinois at Chicago The International Tobacco Evidence Network (ITEN)

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Why Tax Tobacco?

To promote public health To induce current users to try to quit, keep

former users from restarting, and prevent potential users from starting

To reduce consumption among those who continue to use

To generate revenue

To recover the costs of treating smoking-related illnesses and lost productivity

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Types of Tobacco Taxes

Taxes on value of tobacco crop

Customs duties on tobacco leaf imports and/or exports

Customs duties on tobacco product imports and/or exports

Sales taxes

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Elasticity of Demand

Price elasticity of demand A measure of the responsiveness of the

quantity demanded of a good to change in price Equals the percentage change in quantity

demanded divided by the percentage change in price:

Example:

ΔQ/Q

ΔP/P

-1.0-10/100

0.1/1

-0.1

0.1equals equals

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Elasticity of Demand

Crossprice elasticity of demand Measures the extent that the quantity demanded of

one good changes when the price of another good changes

Elastic demand Elasticity less than –1.0 The quantity demanded decreases proportionately

more than the price increases

Inelastic demand Elasticity greater than –1.0 The quantity demanded decreases by less than the

percentage increase in price Evidence shows that demand for smoking is inelastic

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Consumption and Price of Cigarettes: China, 1990–1999

Source: adapted by CTLT from study by Teh-wei Hu and the U.S. Department of Agriculture (2002).

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Source: adapted by CTLT from Tax Burden on Tobacco, The Campaign for Tobacco Free Kids (2007) and authors’ calculations.

Consumption and Price of Cigarettes: U.S., 1970–2006

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Economic Analysis of the Supply of Tobacco Products

Presented by Teh-wei Hu, PhD University of California, Berkeley

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Tobacco Supply

The tobacco leaf is a very important cash crop in many developing countries More than 125 countries grow tobacco

The global tobacco crop is worth approximately $20 billion in U.S. currency—but less than one percent of the value of the global agricultural sector

There are about 20 million tobacco farmers globally

Many governments rely on the tobacco leaf as a major source of local tax revenue

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The Economic Importance of Supply

For many countries that produce tobacco leaf and manufacture cigarettes—such as China, India, and Indonesia—tobacco control is more of an economic issue than a public health issue

For these countries, although tobacco control can have a negative economic effect in the short run, the benefits of smoking control have a larger positive long-term economic effect

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Illicit Trade: Economic, Public Health Consequences

Presented by Ayda A. Yurekli, PhD International Development Research Center

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Economic Impacts of Illicit Trade

Lost tax revenues

More organized crime

Loss of revenue and investment opportunities for legitimate producers

Unemployment in legitimate production

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What Can be Done about Illicit Trade?

Have high penalties

End duty-free sales

Tax stamps

License cigarette exporters, manufacturers, and distributors

Require a unique identifying code on all packs

Make cigarette exporters responsible for final legal destination of cigarettes

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Conclusion: Economics and Tobacco Control

Taxes that increase the price of cigarettes reduce the demand and raise the revenue The demand for smoking is inelastic with

respect to price Cigarette consumption will decrease—but by

proportionately less than the increase in price

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Conclusion: Economics and Tobacco Control

There are strong economic arguments for governments to control both the supply and the consumption of tobacco, including the following: External health care costs related to smoking

and secondhand smoke Negative health effects and economic losses

that accrue not just to the smokers but also to nonsmokers and to society at large (negative externalities)

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Conclusion: Economics and Tobacco Control

Economic arguments for government intervention The addictive nature of tobacco consumption

combined with underage consumption and a lack of full knowledge by consumers

The disproportionate economic impact of smoking on relatively poor countries and poor populations within countries