Section B

1. Section B A Look Ahead: Summary of Main Findings

2. The Costs of Smoking • Presented by Dr. Hana Ross • American Cancer Society • The International Tobacco Evidence Network (ITEN)

3. Perspectives for Costing • Society • Most comprehensive perspective • Individuals and households • Public finances • Businesses and employers

4. 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

5. 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

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

7. 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

8. 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

9. ΔQ/Q ΔP/P -10/100 -0.1 equals equals -1.0 0.1/1 0.1 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:

10. 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

11. 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).

12. Consumption and Price of Cigarettes: U.S., 1970–2006 Source: adapted by CTLT from Tax Burden on Tobacco, The Campaign for Tobacco Free Kids (2007) and authors’ calculations.

13. Economic Analysis of the Supply of Tobacco Products • Presented by Teh-wei Hu, PhD • University of California, Berkeley

14. 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

15. 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

16. Illicit Trade: Economic, Public Health Consequences • Presented by Ayda A. Yurekli, PhD • International Development Research Center

17. Economic Impacts of Illicit Trade • Lost tax revenues • More organized crime • Loss of revenue and investment opportunities for legitimate producers • Unemployment in legitimate production

18. 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

19. 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

20. 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)

21. 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