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Curbing the Epidemic Governments and the Economics of Tobacco Control

Curbing the Epidemic Governments and the Economics of Tobacco Control. Global Evidence and Indonesia By Ayda A. Yurekli, Ph.D Economics of Tobacco Control Seminar in Jakarta, Indonesia November 2000.

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Curbing the Epidemic Governments and the Economics of Tobacco Control

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  1. Curbing the EpidemicGovernments and the Economics of Tobacco Control Global Evidence and Indonesia By Ayda A. Yurekli, Ph.D Economics of Tobacco Control Seminar in Jakarta, Indonesia November 2000

  2. Why did the World Bank produce this report?Economic arguments for, or against, tobacco control are unclear and often debated Government Revenues from Tobacco Taxes Jobs in Agriculture, Manufacture etc. Possible smuggling Cost to individuals, especially the poor

  3. Importance of Tobacco to Indonesian Economy in 1997 • Produced 4% of global production • 0.45 % of all export earnings, • 2% of global tobacco export • 10 million employment related to tobacco • 172,000 Manufacturing tobacco employment, including 120,000 hand-made kreteks producers • Government revenue Rp.10.3 trillion in 2000

  4. Unless current smokers quit, smoking deaths will rise dramatically over the next 50 years Source: Peto and others, 1994; Peto, personal communication.

  5. Higher Increase in Cigarette Consumption

  6. Which interventions are effective?Measures to reduce demand • Higher cigarette taxes • Non-price measures: consumer information, research, cigarette advertising and promotion bans, warning labels and restrictions on public smoking • Increased access to nicotine replacement (NRT) and other cessation therapies

  7. Taxation is the most effective measure • Higher taxes induce quitting and prevent starting • A 10% price increase reduces demand by: • 4% in high-income countries • 8% in low or middle-income countries • Young people and the poor are the most price responsive

  8. What is the “right” level of tax? • Complex question • Depends on various factors, degree to which society wishes to protect children, revenue considerations, etc. • Useful yardstick: where comprehensive programs used, tax is at least 2/3 to 4/5 of retail price.

  9. Cigarette tax levels are lower in low or middle-income countries Source: Authors’ calculations

  10. Tax share in average retail price of cigarettes varies among countries

  11. The Share of Cigarette Excise Tax Revenues in Total and Excise Tax Revenues in Indonesia 1992-1996

  12. Real Cigarette Excise Tax Revenue and Its Rate of Increase from the Previous Year, Indonesia, 1993-2000

  13. As cigarette tax rises, revenues increase too

  14. Tobacco smuggling tends to rise in line with the degree of corruptionSmuggling as a function of transparency index

  15. Canadian Government reduced tobacco tax rates dramatically in February 1993

  16. Sweden decreased cigarette taxes (17%) due to fear of smuggling in 1998

  17. Summary • Tobacco deaths worldwide are large and growing, and have higher burdens in the poor • Specific market failures support government intervention • Demand measures, chiefly tax increases, information, and regulation are most effective to reduce consumption • Control of smuggling is the major supply-side intervention • Tobacco control is cost-effective

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