...Cigarette tax measure may have unintended consequences | | | | Matt Evans On the surface, this November's Ballot Measure 44 is simplicity itself. The measure will increase taxes on cigarettes by 30 cents per pack, as well as on other tobacco products, and the revenue raised will be dedicated to the Oregon Health Plan and tobacco use reduction programs. What could be more straightforward? However, the measure raises a host of interesting issues that voters should weigh prior to casting their votes. Most important, of course, is the core of the measure, its purpose: to raise money for the Oregon Health Plan, ostensibly to offset costs the plan incurs from smoking-related illnesses. State revenue estimators understand that anytime you raise the tax on something, you will get less of it. This is certainly true in the case of Ballot Measure 44 and its effect on cigarette smoking. In fact, the State Legislative Revenue Office estimates that cigarette use will decline about 4.5 percent due to the increased taxation. In a series of four steps over the past 17 years, Oregon has raised the tax on cigarettes from 9 cents per pack to the current 38 cents. Each of these tax increases represented a smaller amount per pack than Measure 44's 30 cents. In every instance, tobacco use has fallen by more than the current projection of 4.5 percent. In fact, tobacco use fell an average of almost 9 percent--twice the state's estimate--after those four cigarette tax increases. The...
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...imposed an excise tax on tobacco products since 1901. An excise tax is a specific tax or an ad valorem tax placed on a particular good or service. The tax placed on tobacco was a ad valorem tax because it was a percentage and not a specific dollar amount. From midnight on the twenty ninth of April 2010, the Australian government increased the excise tax on cigarettes by twenty five percent. It was the first major increase in excise tax for tobacco in over a decade. The excess on cigarettes was increased from $0.2622 to $0.32775 per stick. The additional revenue, along with existing tobacco revenue was to be invested in improving health and hospitals (Department of health and ageing 2011). The increase in the excise tax had a profound effect on the demand of cigarettes and the tax revenue. When the tax was introduced onto the in created a change in the market for cigarettes. The tax on the cigarettes caused the marginal cost of cigarettes to increase. On the supply and demand curve diagram, (figure 1), the increase is shown by an upward movement in the supply curve, also known as the marginal cost curve, because of the additional costs placed onto producers. The twenty five percent excise tax meant that producers were faced with an additional cost increase of twenty five percent cost increase of every packet of cigarettes sold. The impact of this on the market can be shown as an increase in the marginal costs of cigarettes or decreases in the supply of cigarettes. At every quantity...
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...Abstract Cigarette and Tobacco taxation has been a hot topic for years. Typically, the taxing of this product is accepted as there are health concerns associated with the consumption of tobacco products. The concept of raising cigarette taxes aligns with goals of increasing revenue for local, state and federal governments, and also works to increase the overall public health of the country. Although the taxation is widely accepted, there are concerns associated with who the taxation effects primarily, how funds are being utilized and issues with meeting budget goals with the earned revenue. This paper addresses each of these topics in an effort to identify the effectiveness of cigarette and tobacco taxation. Introduction The concern associated with the health risks of tobacco use and cigarettes began as early as the 1930’s. The ill effects of tobacco were studied by epidemiologists in long term case studies to assess the increase of lung cancer mortality to smoking. The findings were considered merely casual by Surgeon General Leroy Burney in 1957. As a few years passed, the concern between the relationship of smoking and health grew. This led to The American Cancer Society, The American Heart Association , The National Tuberculosis Association and the American Public Health Association collaborating together to address a letter to President Kennedy. In this letter they asked for a call to action on the issue of cigarette smoking. The Kennedy Administration...
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...and significant numbers of Filipino youth are smokers. In effect to the high levels of tobacco use, the Philippines had considerably facing adverse health issues and economic consequences from tobacco. With the current low tobacco product taxes and prices in the Philippines, significant increases in tobacco taxes will recline tobacco use and its harmful effects on health and economic consequences while directly generating new revenues. Tobacco Use and Its Consequences According to recent statistics, 30% of most adult Filipinos use some form of tobacco product, with 27.9% smoking manufactured cigarettes and 22.5% recorded daily smoking. Predominantly men smokes and about one in ten women are also tobacco users. The current population estimates, roughly 19 million adults consume tobacco in the Philippines. The socio-economic gradients in smoking prevalence are strong in the Philippines, coming from the lower socioeconomic sector two or more times as likely to smoke as those in higher socioeconomic sector. Tobacco use among the youth sector is a significant problem in the Philippines with 22.7% of 13 to 15 year olds in 2007 reporting using some tobacco product, and 17.5% reporting cigarette smoking. Tobacco use among girls has been increasing, raising concerns about significantly increased prevalence among women in future years. Most Filipino youth are regularly exposed to tobacco smoke at their own homes (54.5%) or in public areas (64.5%). About 87,600 deaths in the Philippines...
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...numbers in the case According to the table 3.1, there is a minimal increase in the excise duty of unfiltered cigarettes in the years 2006-07 and 2007-08 and large increase can be seen in the year 2008-09. In the case of filtered cigarette, there has been a minimal increase or rather we can say that excise duty has been constant for 2007-08 and 2008-09. In the case of bidis, the excise duty is constant for 2006-07 and 2007-08 while decreases in 2008-09. So we can make out from this given table that by increasing the cost of unfiltered cigarette the government wants people to shift from unfiltered to filtered cigarette which will eventually lead to betterment of public health. Secondly, it also helps the Government in the generation of revenue. According to table 3.5, there has been an increase in consumption of bidis and less in cigarettes from 2000-01 to 2005-06. While due to the increase in price of bidis in the year 2006-07, the cigarette consumption of brands likeGold flake, Navy cut, Gold flake small and Wills flake has increased. As the price is increased there would be less consumption of cigarette while on the other side the revenue generated would still be the same or slightly less because of increase in price therefore net sales will be the same without any significant loss. So in order to maintain the revenue generated the quantity of cigarette manufactured will be reduced i,e less number of cigarette will be sold at a higher price Q2: Based on the price elasticity...
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...Date posted: Friday, April 12, 2013 | Manila, Philippines Why is demand for cigarettes inelastic? USUALLY, when the price of a product is raised, demand for that product declines. This rule, however, does not seem to apply to cigarettes, which continue to remain in high demand no matter how much their prices are raised. Jonathan L. Cellona So what explains the “price inelasticity” of cigarettes? The price elasticity of demand measures consumers’ sensitivity to price changes. “Elasticity will measure how much quantity of a good will be purchased by consumers after a price increase. If the price of Good A, for instance, will increase to P12 from P10 and consumers will decrease their consumption of that good to 14 units from 15 units, the elasticity coefficient can measure how consumers responded to the increase in price,” said Ramon Benedicto N. Marcelino, economist and former senior tax specialist at the Finance department. If the elasticity coefficient is 0.38, that means the consumers’ response to the change in price is low. “This means that for every 1% change in the price of good A, there is only a 0.38% change in quantity demanded, which indicates that consumers did not respond much to the increase in price,” Mr. Marcelino said. If the elasticity coefficient is greater than 1, then consumers’ reaction to the change in price is high. Mr. Marcelino pointed out that demand for necessities tends to be inelastic while demand for luxuries, elastic. When there are...
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...| Cigarettes | -0.25 | Beer | -0.23 | Gasoline | -0.06 | BARNES & NOBLE BOOKS Barnes & Noble Books are elastic. The price of elasticity is always negative. In comparing elasticities we are interested in their size. So we drop the minus sign and compare their absolute values. The estimated elasticity is 4.00 which are greater than the absolute value of 1.00 so this good is elastic. Since Barnes & Noble Books are elastic a proposed tax increase will have an increase in price which will reduce the total revenue. Because books are more money people buy less and the distributors share the tax burden which decreases their total revenue + a decrease in sales. Buyers will pay a larger portion of the tax because it does not matter whether the buyer or seller pays the tax. It is all relative either way they pay the same amount. Relative to the quantity being sold. COCA-COLA Coca-Cola is an elastic good. If demand is elastic then an increase in price due to an increase in taxes will reduce revenue for Coca-Cola. You will then have a decrease in quantity demanded also because this good is a substitute. Again as in Barnes & Noble Books buyers will pay more tax than the sellers will. CIGARETTES Cigarettes are inelastic because they are less than the absolute elasticity value of 1. Because cigarettes are inelastic an increase in price due to the tax increase will increase total revenue. Because an increase in tax will cause the quantity of cigarettes to decrease...
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...Cigarettes Taxation: the Solution to a Balanced Budget Excise tax is an effective and important way to raise government revenue. Now my state is experiencing severe budget imbalance, and as a governor, I am going to place a per-unit sales tax on certain goods to mitigate the situation. The economic advisor offered the advice to either tax cigarettes or airline travel. After thorough consideration, I decided to tax cigarettes because of the relative price inelasticity of cigarettes demanded, the minimized deadweight loss, and positive externalities afterwards. As a result, the state will maximize the utility of taxing cigarettes and collect enough revenue to achieve the budget balance. The main reason to tax cigarettes is that the demand of it is very price inelastic compared to that of airline travel. The price elasticity of demand measures the percentage change in quantity demanded due to the percentage change in price. In other words, price elasticity exhibits the responsiveness of a good or service to a change in its price. There are several factors that determine price elasticity of demand, such as the uniqueness, necessity of goods, the number of substitutes, and the percentage of income regularly spending on these goods. In this case, there are two reasons that determine cigarettes’ price elasticity. On one hand, buying cigarettes is habitual consumption, and addicted people are less sensitive to the price change. On the other hand, there are few close substitutes for...
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...quantity supplied will increase (movement upward the new supply curve, S1) while the quantity demanded will decline (movement leftwards of the demand curve, D0). Price of bananas will continue increasing up to the point where the quantity demanded equals quantity supplied and shortage is eliminated. We have now reached the new equilibrium of Eq1. b). School holiday season is deemed to be a non-price determinant; it will affect the demand of interstate air travel. The demand for interstate air travel will reduce as the school holidays end causing the demand curve to shift to the left from D0 to D1. This will create a surplus in the original equilibrium of Eq0. Supply is now exceeding demand and causes deterioration in the price of interstate air travel. As the price reduces, the quantity supplied will reduce (movement down the supply curve, S0). Simultaneously, quantity demanded increases (movement downward the new demand curve, D1). Price of interstate air travel will decrease up to the point where the quantity supplied equals quantity demanded and the surplus is eliminated. This will bring us to the new equilibrium of Eq1. c). For Diagram 1, the war will cause the country’s resources to be affected thus causing a decrease in supply of petrol (the supply curve will shift from S0 to S1). This will produce a shortage in the original equilibrium of Eq0. Demand now exceeds supply causing a rise in the price of petrol. As the price increases, the quantity supplied...
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...Economics Report and Demand & Supply curve Of cigarettes in Australia Introduction: Recently, there has been a new trend in the tobacco industry in Australian society due to the increased prices of cigarettes, mainly for the reason that “with more than 3.1 million people still smoking today, tobacco still being the leading cause of death by a wide margin… “ (Scollo & Winstanley, p.xiii, 2008). Therefore, this report will illustrate the market structure of Australia tobacco industry, and then make analysis about the price chances on the demand and supplies for cigarettes. The third and the fourth part of the report are about the impacts of this change and some government policies for the tobacco industry, respectively. The market structure: Table 1: Tobacco companies operating in Australia: summary table for 2006-07 | BATA | PMA | ITA | Total revenue ($m) | 1476.7 | 623.3 | 386.5 | Net profit after tax ($m) | 410.7 | 172.6 | 2.7 | Shareholders’ funds ($m) | 632.6 | 403.4 | 25.1 | Total assets ($m) | 2962.1 | 627.5 | 176.7 | Number of employees | >110019 | 691 | 299* | Approximate market share in Australia (%) | 4619 | 34* | 1820 | * Figure for 2006 ** Figure assumed on the basis of market share reported by BATA and ITA, and assuming that a small percentage of the Australian market is accounted for by imported brands. Source: The BRW 1000, BAT website, BATA website, Imperial Tobacco Group Website. The tobacco industry in Australia has been considered...
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...Chapter 1 Problem and Review of Related Literature Introduction Assessing the Main Effects of population strategies, such as tobacco taxation and pricing, on high-risk subpopulations is important for understanding the reach and effectiveness of such strategies. Increased tobacco taxes, passed on to consumers in the form of higher cigarette prices, provide an economic disincentive to those who smoke or may be contemplating smoking. Indeed, evidence from this knowledge synthesis strongly supports increasing cigarette prices through tobacco taxation as a powerful strategy for achieving major reductions in smoking among some, but not all, high-risk populations. This is a highly effective policy tool for reducing smoking participation and consumption among youth, young adults and persons of low socioeconomic status. In contrast, major gaps exist in our knowledge about the impact of price on persons diagnosed with mental health or non-nicotine substance abuse disorders, heavy and/or long-term smokers. Raising cigarette prices is an effective tobacco control policy in reducing smoking among youth. While most studies of young adults found that increased prices also result in reductions in smoking behavior, the magnitude tends to be smaller than for youth. Chaloupka and Pacula argue that because tobacco is an addictive substance, response to increased prices will occur more slowly than for non-addictive goods; therefore long-term gains may be larger than short-term gains. The impact...
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...Abstract: “Raising taxes is one of our strongest weapons to fight out tobacco,” said Arun Thapa, Acting WHO Representative to India. Hiking tobacco taxes by 320% between 1996 and 2013 helped the US reduce its per capita annual consumption of cigarettes from 1820 to 893 cigarettes, and cut the number of adults who smoke by about a third. In India, central-excise duty has increased 1606% on the shortest non-filter cigarettes available and 198% on the shortest filter cigarettes since 1996. Taxes constitute about 60% of the price of a best-selling pack of 20 cigarettes, against about 43% in the US. But India was not able to reduce its capita annual consumption of cigarettes in the same proportion. Cigarette smokers in India increased from 25 million to 46.4 million over 14 years (1996 to 2010), and per capita annual consumption of cigarettes declined marginally, from 101 to 96 cigarettes over the same period. With some assumptions, it can be shown that the tax on bidis can be increased to Rs. 100 per 1000 sticks compared with the current Rs. 14 and the tax on an average cigarette can be increased to Rs. 3.5 per stick without any fear of losing revenue. The government though has been taking rigorous initiatives to try and reduce the consumption of tobacco products it has not been able to achieve the results which it wanted to have. There have been many reasons for this to happen and we will look into it in this report. Introduction:- In India, tobacco consumption...
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...an increase in price only slightly alters the change in quantity demanded. Similarly the number of substitutes available tend to define the elasticity of demand and the proportion of income spent by a person on purchasing the product. The inelastic demand curve is as follows: (Economics13 n.d.) In case of cigarettes, the price elasticity measured for different countries by WHO in their study was less than -1 or inelastic and the addictive nature of cigarettes being cited as the main reason for it. The study however does point out that if the prices are increased for a longer period, the demand might in fact be elastic as people would be impacted more by the increase in prices. The research further suggested that the demand elasticity varies amongst poor and rich countries along with the population demographics. (Perucic, 2012) In general when the prices are increased or taxes are raised on inelastic products, the beneficiary is often the producer or the government as the tax burden would be on the consumers. A tax on cigarettes would mean the consumers bearing a greater tax incidence which would in fact discourage them to spend more on tobacco products. (Tax-inelastic-demand n.d.) As seen in the graph above, a tax imposition on cigarettes would shift the supply curve on the left with the equilibrium quantity reducing from Q to Q 1. The inelastic demand would mean that the tax burden is borne by the consumers whereas the producers bear a small fraction of the tax applied...
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...Week 5: Project Part 1 1. Barnes & Noble books -4.00 = Elastic Coca-Cola -1.22 = Elastic Cigarettes -0.25 = Inelastic Beer -0.23 = Inelastic Gasoline -0.06 = Inelastic 2. Tax revenue collections will be in the following order: Gasoline > Beer > Cigarettes > Coca cola > Books the more the elasticity, the less the revenue collected. 3. Similarly, the burden on buyers (tax borne by them) is more for goods that have inelastic demand. So the same sequence as in Q.2 4. The govt. would tax goods with inelastic demand as people will consume for them despite the change in price. Part 2 Tax rates imposed on cigarettes. (Cents per pack) 1. As of 08/2013 California’s taxes imposed per package of 20 (twenty) cigarettes total eighty- seven cents ($0.87) 2. The Nevada excise tax on cigarettes is $0.80 per 20 cigarettes and Arizona excise tax on cigarettes is $2.00 per 20 cigarettes. 3. The current rate is $ 0.87¢ through December 31, 2013. Lower then 64% of the other 50 states. California's excise tax on cigarettes is ranked #32 out of the 50 states. The California cigarette tax of $0.87 is applied to every 20 cigarettes sold that was increase from the $0.62 per pack from 2009. In California cigarettes are inelastic because price elasticity measures the effect of an increase in price on the demand for an item. If an item is relatively price elastic, a change in price has a proportionally larger change in demand. Reference: http://www.tax-rates...
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...Macroeconomics Professor Kirk Hendricks 14 December 2010 Cigarette Taxes: A Fading Epidemic in a Changing World "An injustice anywhere is a threat to justice everywhere." -Dr. Martin Luther King, Jr. Introduction As a grandchild of sharecroppers, biblical values and ethics were instilled in us at an early age. Reflecting on my roots, it was evident that piety included health awareness as well as no alcohol or smoking. Despite these humble beginnings, the war for our nation's health is at a crossroads. Years ago, when my grandparents were young, smoking was not only allowed, it was both a social and cultural norm. Unfortunately, those people who survived are suffering from lung cancer and some haven't lived to tell the tale. Ironically, today as our world becomes more health conscious, we are dropping these "cancer" sticks, opting for a better way of life. As a result, all fifty state governments have enacted taxes on cigarettes. These cigarette taxes help to reduce citizens from smoking as well as convince to stop participating in such a deadly habit. Cigarette taxes also help increase government revenue and will bring more revenue for social programs. Unintended Consequences To begin with, cigarette taxes are imposed to ensure the health of its citizens. According to the Portland Business Journal[1], an interesting situation happened in Oregon. In 1996, Ballet Measure 44 was cast in an effort to increase cigarette taxes by 30 cents per pack. Interestingly, this measure...
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