Price and tax
Research conducted in several countries has shown that high tobacco prices reduce tobacco consumption. In fact, increasing tobacco prices is the single most effective mechanism to reduce demand for tobacco.
The World Bank estimates that in rich countries such as the UK, a 10% increase in the price of cigarettes will reduce tobacco consumption by 4%. In low and middle income countries, tobacco consumption will fall by 5%.
Young smokers and those living on low incomes are most likely to respond to price increases by stopping smoking, or reducing their consumption.
High taxes also benefit the economy. (See ASH analysis below).
Effective pricing policies require high levels of tobacco taxation, combined with closure of loopholes that allow duty free tobacco to be bought and imported. Enforcement against the illicit trade in smuggled and counterfeit tobacco products is also very important. Widespread availability of cheap illicit tobacco undermines the effectiveness of high tobacco tax rates.
Article 6 of the Framework Convention on Tobacco Control requires nations that have ratified the treaty to adopt tax and price policies to reduce tobacco consumption. Measures against smuggling and counterfeiting are addressed under Article 15 of the FCTC. (See also ASH Pathfinder on Illicit Trade.) Guidelines on the implementation of Article 6 were adopted at the 6th Conference of the Parties in 2014.
Smoking Still Kills. (2015)
ASH’s recommendations for a revised tobacco control strategy include a proposal for a Tobacco Companies Obligation (levy) to pay for the harm the industry causes.
A UK tobacco levy: The options for raising £500 million per year.
This report estimates the rate at which a levy would need to be set to raise £500m per year over 5 years. A research report for ASH by Howard Reed, Landman Economics. February 2015
Reed, H. The effects of increasing tobacco taxation: A cost benefit and public finances analysis. London, ASH, 2010 (pdf file)
ASH Fact Sheet on the Economics of Tobacco (pdf file)
ASH Tobacco Taxation page - Includes further information setting out the case for a levy on the tobacco industry.
Current Key Texts
Two recent supplements of the journal Tobacco Control include a number of studies on the economics of tobacco. See:
The Economics of Tobacco Control: Evidence from the International Tobacco Control (ITC) Policy Evaluation Project (2014) and
The Economics of Tobacco Control (part 2): Evidence from the International Tobacco Control (ITC) Policy Evaluation Project (2015)
Jha P & Peto R. (2014) Global Effects of Smoking, of Quitting, and of Taxing Tobacco. N Engl J Med, 370:60-68
Now is the best time to raise taxes on tobacco. Fact sheet produced for World No Tobacco Day, 2015
Gallus S, Schiaffino A, La Vecchia C et al (2006) Price and cigarette consumption in Europe Tobacco Control 15:114-19
Frieden TR, Mostashari F, Kerker BD et al (2006) Adult Tobacco Use Levels After Intensive Tobacco Control Measures: New York City, 2002–2003 American Journal of Public Health 95 (6):1016-23
Ross H (2004) The Economics Of Tobacco And Tobacco Control In The European Union. In ASPECT Consortium Tobacco Or Health In The European Union Past, Present And Future. Luxembourg: Office for Official Publications of the European Communities (pdf file)
Other Seminal Texts
Chaloupka FJ, Cummings KM, Morley CP and Horan JK (2002) Tax, price and cigarette smoking: evidence from the tobacco documents and implications for tobacco company marketing strategies Tobacco Control 11:i62-i72
Jha P and Chaloupka F (2000) The economics of global tobacco control BMJ 321:358-61
Townsend J, Roderick P, Cooper J. (1994) Cigarette smoking by socioeconomic group, sex and age: effects of price, income and health publicity. BMJ 309:923–7
The World Bank
Includes the World Bank’s key publications on the economics of tobacco.
Some commentators have expressed concern that high tobacco prices are regressive, i.e. that low income smokers pay a higher proportion of their income in tobacco duty. However, the evidence shows that low income smokers are most likely to respond to price increases by quitting. Overall, the public health benefits of high tobacco taxation are greater than the potential harms of the increased price among low-income smokers who do not quit.
Using money raised from tobacco duty to pay for stop smoking services targeted at low income smokers is one way of addressing concerns that tobacco tax is unfair for poor smokers.