...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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...Effects of Taxation on Cigarette Smoking In economics the demand elasticity refers to the sensitivity of the quantity demand for a product to the changes in price. This relationship correlates to the basic law of demand which states that if the price of a product or good increase, then the consumer demand would fall and decrease because of the change. However not all products follow this fundamental theory. In fact products that are considered addictive substances, such as tobacco and cigarettes can be the exception to this basic law because we must take into account not just the pricing but other factors such as time, usage, limitations, and restrictions. Imposing higher taxes on cigarettes will have a mix effect as to who the price increase affects. As noted in the Chaloupka article, “The effects of prices and tobacco”, paying higher taxes on cigarettes as well as placing stronger controls as to who is able to purchase them will lead to a reduction in the consumption of cigarette smoking. The article is supported by studies done in the early eighties and late ninnies, confirming the reduction is towards both adults and youths alike. However price sensitivity is significant in its responsiveness between youths and young adults than compared to adults; up to three times more sensitive. Some reasons as to why this may be, is due to the strict regulations and laws set by states and local governments that enforce and control the purchase of tobacco products to the consumer...
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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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...Economically and culturally smoking is considered to be a “norm” within society. The government has policies on cigarettes that try to help reduce smoking, but in an effort to make more revenue the taxes that are placed on cigarettes are not so high that consumer usage will drastically decline and affect government revenue. The government has imposed quotas and tariffs on cigarettes to help regulate the importation of them. A country like the United States has a high border tariff, which the government likes, because its economic level of exporting is high. Countries that are considered to be third-world or developing nations tend to have low or no border tariffs on tobacco. By placing a tariff on tobacco, consumers lose, but the government earns income from it in the form of taxes. Quotas on the other hand, take some of what the consumers lose and give it to the suppliers who are fortunate enough to have their product shipped as part of the quota. For example, the few tobacco farmers in the United States who are granted quotas by the government earn a lot of money mainly because they have no shipping cost – government pays for their shipping cost. The government knows that cigarettes are a bad commodity but since the government makes money off of it, taxes are put in place. The taxes are not only put in place for the government to make money but an effort to reduce smoking, particularly amongst young people (MBN, 9). Young people are targeted the most because studies have...
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...Tobacco Taxation 1 Tobacco taxation is a hot topic and all 50 state governments have enacted taxes on cigarettes, and many have raised their taxes several times. Taxes on cigarettes are a way governments can achieve two social objectives; the first objective is to reduce the number of citizens who smoke. The government issuing the cigarette tax hopes that the rise in the cost of a pack of cigarettes will persuade people to quit smoking. The second objective is to raise government revenue. A cigarette tax, like any other tax, increases the amount of revenue governments can spend on social programs. Where there’s smoke, there’s taxes — especially for New Yorkers. In a 2010 budget move officials say will generate $440 million in revenue, the state legislature passed a bill that gave New York the highest cigarette tax in the country. On July 1, 2011 every pack sold in the state cost an extra $1.60, raising the total state tax to $4.35, pushing the average cost of a pack up to $9.20. For New York City residents, the cost of a pack will now come out to close to $11 — a $2 rise from just over a year ago. The $440 million in revenue will benefit health care programs, AIDS drugs subsidies, tobacco cessation programs and $71.6 million will go to the state cancer research center in Buffalo. Supporters also applaud the health benefits, saying it will reduce the number of smokers by tens of thousands of people. Tobacco consumption is the leading cause of preventable death in many...
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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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...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. The government while increasing taxes on cigarettes needs to ensure that all relevant substitutes for the...
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...estimated as $8.283 billion. Of this, 44% were productivity costs, 24% were health system costs, 23% were carers costs, 9% were DWL from transfers and 1% were other indirect. Finally, the five characteristics of desirable tax on discourage the eating of unhealthy food. The first characteristic is economic efficiency. Economic efficiency is the principle of taxation that suggests that a tax system should not be distortionary (Frijters, Dulleck and Torgler. 2010). Obesity is inelastic demand, therefore, putting fat tax on unhealthy food is not efficient. It is as same as putting tax on cigarette. At the end same result will be appeared. Either eating unhealthy food or smoking, people will no change their habits very soon but it will affect a little on people. The second characteristic is simplicity. Simplicity is defined as measured by administration cost and compliance costs (Frijter et al, 2010). This could be done in two ways: food types could be subject to the tax according to their fat or foods could be taxed according to the percentage of fat they contain (Leicester & Windmeijer, 2004). Compared with cigarette, government put the tax on the...
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...THE ECONOMICS OF TOBACCO TAXATION IN INDIA Tobacco taxation in India tends to be low for the most commonly consumed tobacco products. In order to suggest ITC about their strategy for the rural market, we must understand the taxation policies that prevail. India has a tobacco tax structure which is complex, different taxes for hand-rolled versus machine-made bidis, etcetera. In the table given, we observe that bidis are taxed less than filtered cigarettes. At the same time, the tax remains constant for bidis whereas it increases for cigarettes. In table 3.5, we observe that cheaper the tobacco, higher the tax because we assume that cheaper tobacco is more hazardous. But for bidis though the cost is cheap, it is taxed less as it focuses on the mass consumer whose buying potential is less. So its demand is more elastic than the expensive tobacco. Considering the data given in table in 3.1 and 3.5, tobacco products like bidis are less taxed, and it caters to the needs of majority of the consumers. Cigarettes and bidis are consumed by classes of people from different economic strata. Rural markets have a potential for bidis since the lower income group resides more in rural areas. The taxation on bidis is almost constant through the years, it is more profitable to enter the tobacco market through bidis in rural areas.. Own price elasticity in rural areas for bidis is more elastic than in urban areas. For example, an increase of 10% in price will decrease the quantity...
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...The Truth about the Economy of Cigarettes Christopher Tucker Central Penn College “The Truth about the Economy of Cigarettes” The topic of the production, manufacturing, taxation, advertising, and laws of the tobacco industry in the United States has always been, and will always remain, one of the most controversial industries in the United States of America. It is an industry where spokespeople from both sides have blatantly lied to the American public in order to further achieve their goals and agendas. Unlike our grandparents and great grandparents, we all know that cigarettes are extremely detrimental to one’s health. Though a Surgeon General warning is displayed on each pack of cigarettes, stating that; smoking causes lung cancer, heart disease, emphysema, and may complicate pregnancy. There are so many chemicals in a single cigarette, that it is one of the few products on the market that does not display it’s ingredients on the packaging. After viewing the amount of chemicals in cigarettes, I don’t believe they would even be able to fit them on the box if they tried There are two sides to every agenda. There is always some bad with any good. There are always faults where there is success. Yes, cigarettes are extremely unhealthy for the American public, but it is one of the few remaining markets of production that the United States ranks as one of the top producers in the entire world. It is “Tobacco Season” in our area of Lancaster, Pennsylvania. If you were to...
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...Should Electronic Cigarettes Be Regulated As Traditional Cigarettes? Recently, there has been a national discourse concerning the extent to which the government should meddle in the regulation and taxation of electronic cigarettes, or e-cigarettes. Some states are in favor of taxation on these products, but others are not. Anti-smoking advocates push for more restrictions and higher taxes for the product, but many others disagree, arguing that e-cigarettes are a healthy alternative to traditional cigarettes. As of right now, the Food and Drug Administration has no regulative control over e-cigarettes because they are currently not considered to be medical products. E-cigarettes are battery-powered substitutes which heat up liquid nicotine into a vapor. As such, they do not contain any of the additional hundreds of cancer-causing chemicals or tar that you would get from smoking tobacco-based cigarettes. The current marketing of the product is to attract current smokers to the product, rather than serve as a medical smoking cessation aide, which would have been under regulatory authority of the FDA. Because of this, they are considered to tobacco products, under the regulatory authority of the bureau of alcohol, firearms, and tobacco. However, as a newer product, they are not itemized on current tobacco-related laws, & don’t contain actual tobacco plant, therefore letting them escape the many penalties imposed on such products. We do not believe that it would make...
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...Taxation On Cigarette Smoking Economics Essay In the following paper you will be able to see who is likely to be more affected by tax increases on cigarettes: all adults or young adults. You will also be able to see how we can reduce the effects of cancer by reducing the cost of other tobacco products. You will also see long term elasticity of demand for cigarette smoking and what does this mean for the likely impact of taxes on long-term cigarette use and do you think taxing can be effective in decreasing the use of alcohol? Explain your answer using economic theory The people that are mostly affected by the increases in tax on cigarettes according to Frank J. Chaloupka would be the youth and Adults. The single most consistent finding of many econometric studies of the issue of cigarettes price being increased would lead to a drop in smoking. The ten percent increase in cigarettes price would overall drop the consumption of cigarettes sales by fiver percent. (Chaloupka, p. 3) By increasing the price in cigarettes it would most likely affect the youth and young adults do to the price increase. According to Study in 1996 by Chaloupka and Grossman they confirmed the earlier studies that the are three times as sensitive to the price increase then the adults (Chaloupka, p. 4) because they don’t have money like adults would have. Over all with the tax increase we will see a decrease in overall sales of cigarettes. To have the great effect on reducing cancer from the use of tobacco...
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...policy. PMI must balance strategies which address the heightening involvement of western governments in the tobacco industry with the growth opportunities in developing markets. The following outlines the three most significant risks facing PMI and identifies existing strategies in comparison to competitors. The first significant risk facing PMI is government restrictions on advertising. Governments globally are increasingly restricting the means by which PMI can actively market to consumers. As a result, the branded tobacco industry has been limited to select sponsorship and online marketing efforts. The latest restriction involves mandating plain packaging. Australia is set to become the first country to introduce plain packaging for cigarettes in December 2012, thereby eliminating a critical brand marketing vehicle for the industry, a precedent that will have worldwide repercussions. Such measures are anticipated to expand to other regions, which restrict PMI’s ability to launch new (and differentiated) brands and to command a premium price. In the event that the tobacco product industry becomes a commodity market, with no way to differentiate other than price, production cost-reduction initiatives will serve to partially mitigate against the risk to profitability. In response to advertising restrictions, the industry has moved to new promotions using largely unregulated online advertising to establish new customers and maintain existing ones. For example, PMI has launched Marlboro's...
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...Assignment 4 Exercise 1: Price Elasticity of Demand for Tobacco & Taxation a. Government revenue will go up as the tax is per cigarette and as we know tobacco smoking is addictive therefore translating to higher revenue for the government. This revenue can be used to take care of the welfare of the populations. b. The difference in price elasticity can be attributed to the income of the different age group and the level of addiction in the two different groups. c. Due to their low income increase in prices due to taxation will hinder them from accessing tobacco at the higher price. d. The budge of the low income people will have to change as they will have to forego some items to be able to buy the cigarettes at the high price that has been set. e. Demand curve after tax assuming before tax the cost of a cigarette was $10 Supply curve f. The levy will lead to high supply as the prices of the products will increase on the other hand, the demand of the goods will go down as the price will reduce consumption of the product. g. The welfare of the tobacco use will be impacted positively by the taxation as the number of cigarettes smoked in a day will reduce therefore reducing the health effects of tobacco and this will translate to reduced hospital spending and prolong life. h. Demand of rollies and supply curve of rollies after taxation as illustrated in the table below. i. Taxation of the cigarettes has increases demand of the home made rollies that has translated into...
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...Public Sector Economics Exercises 1. Florida Taxation a. The 5.5% corporate flat tax levied in Florida is a PROPORTIONAL tax because it is based on gross income of corporations. This tax is levied at the identical 5.5% rate across all levels of gross income on corporations registered or doing business in Florida, so by definition, the tax is proportional. b. Florida’s 6% sales tax is REGRESSIVE since all consumers, regardless of earnings are required to pay the same tax rate. There are arguments that consider the sales tax proportional because the same rate is evenly applied across low-, middle-, and high-income taxpayers. However application of the sales tax is regressive because the percentage of tax paid decreases with respect to total income as income levels increase. Lower-income tax payers pay the same dollar amount for particular goods as higher-income individuals, but at lower-income levels the tax represents a greater proportion of overall income and therefore the tax is actually, in application, regressive. Sales taxes on essentials like food, clothing, and housing also take up a larger percentage of lower-income individuals budget. The argument for proportionality of the tax is that higher-income individuals actually purchase more goods and more expensive goods. Because sales taxes in general do not take into account the economic or personal circumstances of the purchaser, and that the tax is not a personal income levy, both low- and highincome individuals...
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