Some economic aspects of tobacco regulation

Cigarette smoking in the United States is implicated in about 480,000 deaths each year, about one in five. Cigarette smokers lose about 10 years of life expectancy on average. According to a report by the U.S. surgeon general in 2020:

Tobacco use remains the number one cause of preventable disease, disability, and death in the United States. About 34 million American adults currently smoke cigarettes, most of whom smoke daily. Almost all adult smokers smoke since adolescence. More than two-thirds of smokers say they want to quit, and thousands try to quit every day. But since the nicotine in cigarettes is highly addictive, most smokers need multiple attempts to quit permanently.

Philip DeCicca, Donald Kenkel and Michael F. Lovenheim summarize the evidence on “The Economics of Tobacco Regulation: A Comprehensive Review” (Journal of economic literature, September 2022, 883-970). Obviously, I can’t hope to do their work justice in a blog post, but here are some of the points that caught my eye.

  1. US efforts to regulate smoking changed dramatically in the late 1990s, with a huge increase in cigarette taxes and smoking restrictions.

For example, here is a figure showing the combined federal and state tax rate on cigarettes as a percentage of the price (solid line) and as a price per pack (dashed line). In both cases, a sharp increase is evident from around 1996 until 2008.

In addition, smoking bans have increased significantly.

Governments around the world have sporadically implemented smoking bans over the past five decades, but they have become much more prevalent over the past two decades. … [W]Non-smoking indoor air laws for workplaces, bars and restaurants have become increasingly common. In 2000, no state had yet passed a complete ban on smoking in these areas, although some states had more targeted bans. From 2000 to 2009, the fraction of the US population covered by smoke-free construction laws increased from 3% to 54% and the fraction covered by smoke-free restaurant laws increased from 13% to 63% … turn of the century, the rise in taxation and regulation of cigarettes and tobacco is unprecedented and dramatic.

2. As tobacco use is discouraged in a number of ways, all at the same time, it is difficult for researchers to clarify the individual effects, for example, of cigarette taxes versus workplace smoking bans versus health warnings. imposed by the government against changing levels of social approval.

3. My previous understanding of conventional wisdom was that the demand for cigarettes from adult smokers was relatively inelastic, while the demand from younger smokers was relatively elastic. The underlying belief was that (as a group) adult smokers have had a longer lasting tobacco habit and have more income, so it was more difficult for them to shake off the tobacco habit while tobacco use aside. of younger smokers it is more malleable. This conventional wisdom may need some tweaking.

The consensus of the latest comprehensive review of research conducted 20 years ago (Chaloupka and Warner 2000) indicates that adult cigarette demand is inelastic.
More recent research on a period of much higher cigarette taxes and lower smoking rates supports this consensus, however, there is also evidence that traditional
Methods for estimating the reactivity of the price of cigarettes overestimate the price elasticity
request. Furthermore, more recent research questions the prior consent that young people have
the demand for smoking is more elastic than the demand for adults; the most credible studies on
juvenile smoking indicates a poor relationship between smoking initiation and cigarettes
taxes. The inelastic nature of cigarette demand suggests that excise duties on cigarettes are an efficient way to generate revenue.

To put it another way, higher cigarette taxes do a decent job of raising revenue, but they don’t do much to discourage smoking.

4) If cigarette taxes are really about revenue collection, because they don’t do much to discourage smoking, then it becomes particularly relevant that low-income people tend to smoke more, and thus end up paying more with taxes on cigarettes. cigarettes. This figure shows cigarette consumption by income group; the next figure shows cigarette taxes paid by income group.

5) Broadly speaking, there are two economic justifications for cigarette taxes. One is what economists call “externalities,” which are the costs that cigarette smokers impose on others in ways that include passive smoking and higher health care costs shared by public and private health insurance plans with non-smokers. The other is the “inwardness”, which are the costs that smokers who would like to quit but find themselves trapped by the addition of nicotine, impose themselves. The authors write:

However, the evidence on the magnitude of the externalities created by smoking does not necessarily support current tax levels. Research on the economics of behavioral wellbeing suggests that the insides of smoking provide a potentially stronger motivation for higher taxes and stricter regulations. But the empirical evidence on the extent of smoking is surprisingly sparse.

6) Finally, reading the article, I wonder if the United States is, to some extent, replacing marijuana with tobacco cigarettes. As the authors point out, the few detailed research studies on this topic have found no such link. However, broadly speaking, the trend line for cigarette consumption is sharply declining over time, while the trend line for marijuana use is increasing. A recent Gallup poll reports that “[piĂą]people in the United States now smoke marijuana as opposed to cigarettes. “The evidence from the National Survey on Drug Use and Health more or less supports this claim:[m}orepeopleintheUSarenowsmokingmarijuanathancigarettes”EvidencefromtheNationalSurveyonDrugUseandHealthdoesn’tmore-or-lessbacksupthatclaim:[m}orepeopleintheUSarenowsmokingmarijuanathancigarettes”EvidencefromtheNationalSurveyonDrugUseandHealthdoesn’tmore-or-lessbacksupthatclaim:

Among people 12 years of age and older in 2020, 20.7% (or 57.3 million people) used tobacco products or used an e-cigarette or other vaping device to vape nicotine in the
last month. … In 2020, marijuana was the most commonly used illicit drug, with 17.9% of people 12 years of age and older (or 49.6 million people) having used it in the past year . the
the percentage was highest among young adults aged 18-25 (34.5% or 11.6 million people), followed by adults aged 26 and over (16.3% or 35, 5 million
people), then by teenagers between the ages of 12 and 17 (10.1 percent or 2.5 million people).

However, around a fifth of tobacco product users did not smoke cigarettes, and with that adjustment, cigarette smoking would be slightly less than total marijuana consumption.

For those who want more information on smoking-related issues, here are some previous posts: