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Elasticity & merchant-of-death ‘scream tests’ for assessing the new anti-smoking measures

Earlier I endorsed a NPHS proposal for a 17.5 cent per stick increase in tobacco taxes.  The earlier report by the National Preventative Health Strategy is here.   My computation was that between 122,000-245,000 of Australia’s 2.8 million smokers would quit on account of that proposal – this involved a 72% increase in tax from 24.3 cents to 41.8 cents. .

The current Rudd Government proposal is for a 25% increase in the tax which about one-third of the NHS proposal.  My educated guess is that the number of quits on the basis of this proposal would be from 40,000-80,000 which is somewhat less than the Cancer Council’s estate of 100,000.  Of course the change is very welcome and the 100,000 figure might be more reasonable when the ‘plain packaging’ rule and extra funding for quit campaigns comes into being.

The figures here are based on assumptions about price elasticities of demand for smoking and from the assumption that quit elasticities are around half demand level elasticities.  An amusing alternative way of assessing both the tax increase measure and the ‘plain packing’ measure is to employ, instead,  the ‘tobacco company scream test’ (HT Fiona Sharkie of Quit).  The louder the cancer vendors scream the more effective is the anti-smoking policy measure. Indeed this is probably a qualitatively a reasonably accurate test given that these merchants-of-death probably know the legal carcinogen market better than anyone.  On this basis, the current proposed tax and packaging measures look like working very well indeed. The cancer vendors are screaming like uprooted mandrakes.

The qualifications I made to forecasts using the elasticity approach employed before remain relevant again. About half of smokers face a death that is directly attributable to their habit.   As I set out in the earlier study one seeks quits rather than smoking intensity reductions since the latter are less effective in reducing health risks – it is the compensation phenomenon – people ‘smoke harder’ to get the same nicotine levels – and this tends to sustain the incidence of disease.  In addition, ex smokersstill  face a much higher risk of lung cancer than those who have never smoked so that overall health benefits are difficult to compute.  But the net gains are obvious.

The argument put in The Australian by Adam Cresswell  last assessment and by the right wingers at Catallaxy this time around (see the immediately previous post) – namely that these moves are regressive – is trotted out every time a price increase on smokes and booze is proposed.  It is rebutted each time it pops up but always rebounds as a convenient lie. Poor people do tend to be smokers and to drink a lot so the impact of tax measures on these activities is regressive  but the tax-transfer system should be judged by its overall impact not that of individual charges. Revenues gained from such things as cigarette taxes can even be redistributed back to the poor if this is sought. And poor people gain in any event from these types of policies by having lower incidence of cirrhosis, lung cancer and emphysema.

It would be interesting to get the data on calls to organizations such as Quit over the next few weeks.  Some of my smoker friends went out last night and stocked up big on cigarettes.  These are the people who will not quit. But forward-looking “rational addict” smokers will cut their smoking now in anticipation of permanently higher prices and it is some this lot who will make the permanent move to quit.

4 comments to Elasticity & merchant-of-death ‘scream tests’ for assessing the new anti-smoking measures

  • I have visited your site before. It’s Great! IMHO you have a nice port

  • First time on this site – I look forward to more visits.
    On this issue maybe you could clear something up for me. I would have thought addictive substances would be pretty price-inelastic. But there is clearly evidence of some elasticity – how strong is the evidence? I was also wondering how price effects work with consumptin of illgeal substances (reliable figures hard to get I acknowledge).
    I did notice a reference in the Australian the other day to proof of the effect of a price rise and of a price fall from the Canadian experience where tax went up (consumption down) and then went down again (consumption up). Which sounds good until you go on to read that the reason for the tax going down was to stop smuggling – casting doubt on the consumption result.
    On packaging, I guess that works only on the “enhanced status from smoking” motive but is there any evidence of minimal packaging working? A final question: any estimates of the percentage of the population who are on the “won’t ever quit” path (like your friends who bought out the store)? I imagine this would put a floor on the numbers we can expect to resist all measures aimed at stopping smoking – once we get to that level, do we decide further education/policy measures are not worth it?

  • hc

    John, The elasticities are not high but there is enough elasticity to provide significant effects of taxes. You need other policies to discourage as well. The elasticities are likely to be higher among casual users and youth smokers and these are important targets.

    There is evidence that smokers choose on the basis of brand colour and design.

    Some established smokers won’t quit but youth can be targeted intensively so that levels of smoking in the future are very low.

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