Editoials
How Effective Are Excise Tax Increases in Reducing Cigarette Smoking? Novelist and former smoker William Styron captured the sense of revulsion many of us feel towards cigarettes when he wrote, "They [cigarettes] should be regarded, then, as the vile little marauders that they are, possessing no merit and vast lethal capacity, needing to be banished with the passion that we banish any other product that we innocently adopt only to discover that it endangers our lives." (p
285)1 As readers of this journal are well aware, over 3 decades of research on the health consequences of smoking have produced astonishing results, leading a former surgeon general of the United States to conclude that smoking is "the chief, single avoidable cause of death in our society and the most important public health issue of our time." (p xi)2 Cigarettes are blamed for more than 390 000 premature deaths annually in the United States, which translates into a loss of approximately 4 million years of life (when calculated using an average life expectancy of 75 years).3,4 The health toll taken by cigarettes and the consequent quest to "banish" them have stimulated the development and implementation of a wide variety of programs and policies to control smoking across the country, ranging from educational initiatives and behavior modification programs that encourage smoking cessation to legislation that restricts smoking in public places or that increases cigarette excise taxes. This last policyincreasing cigarette excise taxes-is the subject of the paper by Peterson and his colleagues that appears in this issue of the
journal.5 Using what they describe as an epidemiologic approach, the authors endeavor to assess the extent to which state cigarette excise tax increases are responsible for reducing cigarette consumption. This article provides another chapter in the long tradition of studies exploring this subject, dating back almost 50 years to Schoenberg's study entitled, simply, "The Demand Curve for Cigarettes."6 Yet despite this long tradition, the question of the extent to which excise tax increases are capable of reducing cigarette demand remains largely unsettled. The Peterson et al. results, though obtained with methods entirely different from those found in the econometrics literature, are consistent with the (rather broad) range of results reported in previ-
Januaxy 1992, Vol. 82, No. 1
ous studies of smokers' sensitivity, or responsiveness, to cigarette price increases. Specifically, Peterson et al. calculated an implied price elasticity of demand of -0.49, which means that a 10% increase in the price of cigarettes will reduce per capita cigarette consumption byjust under 5%. While these figures are no doubt impressive, they may present a somewhat optimistic view of the ability of excise taxes to reduce cigarette consumption, which, in turn, may lead legislators and policymakers to put too many eggs in the excise tax basket. Although the epidemiologic approach used by Peterson et al. has produced an elasticity estimate that is in the ballpark of other such estimates, their method may have failed to control for factors that also affect cigarette consumption (e.g., local and state restrictions on smoking in public places, years of schooling, demographic characteristics). Consequently, the effects attnbuted to tax-induced price changes may in reality be due to the influence of other variables that were not captured in the authors' model but that are correlated with cigarette prices and/or cigarette consumption. For example, recent studies indicate that state and local regulations restricting smoking in public places have a significant influence on cigarette consumption and that such regulations are correlated with cigarette prices. Interestingly, although Peterson et al. acknowledge this possibility, they also note that the method used in their study does not allow them to account for the simultaneous effects of excise tax increases and regulations that restrict smoking in public places. However, in a subsidiary analysis, the authors reported finding no evidence of a strong relationship between state clean indoor air acts and per capita cigarette consumption. Peterson et al.'s conclusion that regulations restricting smoking in public places do not significantly affect cigarette consumption stands in stark contrast to one recent study, which applied econometric techniques to data on almost 100 000 individuals. These data were collected between 1970 and 1985 and were used to examine the effects of both excise tax increases and clean indoor air laws on cigarette consumption.7 After controlling for many factors known to influence cigarette consumption (including, of course, price), the authors were able to show that clean indoor air laws are quite effective in
achieving reductions in smoking. In particular, when a state or municipality increases the stringency of clean indoor air laws from restricting smoking in a handful of minor public places (e.g., waiting rooms, elevators) to restricting smoking in a broad range of public places (including restaurants, schools, andworksites), adult and teenage per capita cigarette consumption decrease by 6 and 40%, respectively. The same study also showed that both adults and teenagers are considerably less responsive to price increases than implied by the Peterson et al. results, with price elasticities for both adults and teenagers in the -0.2 range. However, when the variable measuring clean indoor air law stringency in the respondent's state of residence was excluded from the model, the price elasticity of demand essentially doubled, placing itwithin striking distance of the Peterson results. The point, then, is simply that if one fails to adequately account for the influence of these laws, one may be left with a biased view of the potential for excise taxes to reduce smoking. All of this is not to suggest that we should abandon our effort to raise cigarette excise taxes. On the contrary, because virtually all studies have indicated that smokers and prospective smokers are at least somewhat responsive to price increases (i.e., the price elasticity ofdemand is not zero), higher cigarette taxes will result in lower cigarette consumption and a subsequent improvement in the public's health. Additionally, because the price elasticity of demand is low, higher taxes will also prove to be a potent source of revenue for our financially-strapped federal, state, and local governments. It is important to note, however, that the findings reported in all studies of cigarette demand hold only for the range of prices observed throughout the country over the particular time periods studied. This means that we cannot say with any reasonable degree of confidence how both teenagers and adults would respond to a large tax increase, say one on the order of a dollar or two per pack. In this regard, we are likely to benefit from the experience of our Canadian neighbors: there, combined federal and provincial cigarette taxes have recently been raised to more than $3.00 per pack.
Editor's Note. See related article by Peter-
son et al. on page 94 of this issue.
American Journal of Public Health 19
Editoials
In the meantime, state and federal policymakers should not be lulled into believing that marginally higher cigarette taxes will deter teenage smoking and reduce adult smoking to an appreciable extent. If we are to make substantial progress in our attempt to transform our society into a smoke-free one, then we must, concomitantly, impose significantly higher cigarette excise taxes (preferably at the federal level to limit opportunities for interstate bootlegging) and pass additional legislation that restricts smoking in public places. With respect to excise tax increases, however, we must be mindful of the distributional consequences of higher taxes. More precisely, because low-income smokers do not appear to be any more responsive to higher cigarette prices than high-income smokers,7 higher excise taxes will result in disproportionate economic harm, and, in some cases, could lead poorer smokers to forgo food, shelter, and needed health care to fulfill the persistent and pernicious demands of their smoking habits. As a result, higher cigarette taxes should be accompanied by
measures to compensate the poor for the larger burden that they will necessarily have to bear. For example, federal and state income tax structures could be modified to facilitate such compensation. Alternatively, or in conjunction with income tax changes, effective smoking cessation programs could be targeted to lowincome smokers. In summary, although Peterson et al. provide yet further evidence that smokers are indeed responsive to cigarette price increases, this effect may be less pronounced than their results indicate. At the same time, the potential for regulations that restrict smoking in public places to achieve significant reductions in cigarette smoking appears to be promising. Legislators and policymakers at the local, state, and federal levels should be strongly encouraged to take action on both fronts. O
References 1. Styron W. A symposium: Cigarette ads and the press. 77Te Nation. 1987;244:283-286. 2. US Department of Health and Human Services. The health consequences of smoking:
cancer. A report of the surgeon general. Rockville, MD: US Department of Health and Human Services; 1982. 3. US Department of Health and Human Services. Reducing the health consequences of smoking: 25 years ofprogress. A report of the swgeon generaL Rockville, MD: US Departnent of Health and Human Services; 1989. 4. Centers for Disease Control. Smoking-attnbutable mortality and years of potential life lost-United States, 1984. MMWR. 1987;36:693-697. 5. Peterson DE, Zeger SL, Remington PL, Anderson HA. Evaluating state cigarette tax increases as interventions to reduce cigarette smoking: United States, 1955-1988. Am JPublic Health. 1992;82:94-96. 6. Schoenberg, EH. The demand curve for cigarettes. JBusiness. 1933;6:15-35. 7. Wasserman J, Manning WG, Newhouse JP, Winkler JD. The effects of excise taxes and regulations on cigarette smoking. J Health Econs. 1991;10:43-64.
Jefirey Wasserman PhD Jeffrey Wasserman is with the Health Policy Research Division of SysteMetrics/McGrawHill. Requests for reprints should be sent to Jeffrey Wasserman, PhD, SysteMetrics/ McGraw-Hill, 104 West Anapamu Street, Santa Barbara, CA 93101.
Edito,ial Transition On January 1, 1992, the editorship of this Journal passed to me. The responsibility and the credit for this issue and a few still to come do not belong to me, however. Michel Ibrahim has smoothed the transition with the gift of these several issues prepared in advance. I owe him gratitude not only for this but for the contributions he has made to the form and organization of the Journal. Mervyn Susser
20 American Journal of Public Health
January 1992, Vol. 82, No. 1
How Effective Are Excise Tax Increases in Reducing Cigarette Smoking? Novelist and former smoker William Styron captured the sense of revulsion many of us feel towards cigarettes when he wrote, "They [cigarettes] should be regarded, then, as the vile little marauders that they are, possessing no merit and vast lethal capacity, needing to be banished with the passion that we banish any other product that we innocently adopt only to discover that it endangers our lives." (p
285)1 As readers of this journal are well aware, over 3 decades of research on the health consequences of smoking have produced astonishing results, leading a former surgeon general of the United States to conclude that smoking is "the chief, single avoidable cause of death in our society and the most important public health issue of our time." (p xi)2 Cigarettes are blamed for more than 390 000 premature deaths annually in the United States, which translates into a loss of approximately 4 million years of life (when calculated using an average life expectancy of 75 years).3,4 The health toll taken by cigarettes and the consequent quest to "banish" them have stimulated the development and implementation of a wide variety of programs and policies to control smoking across the country, ranging from educational initiatives and behavior modification programs that encourage smoking cessation to legislation that restricts smoking in public places or that increases cigarette excise taxes. This last policyincreasing cigarette excise taxes-is the subject of the paper by Peterson and his colleagues that appears in this issue of the
journal.5 Using what they describe as an epidemiologic approach, the authors endeavor to assess the extent to which state cigarette excise tax increases are responsible for reducing cigarette consumption. This article provides another chapter in the long tradition of studies exploring this subject, dating back almost 50 years to Schoenberg's study entitled, simply, "The Demand Curve for Cigarettes."6 Yet despite this long tradition, the question of the extent to which excise tax increases are capable of reducing cigarette demand remains largely unsettled. The Peterson et al. results, though obtained with methods entirely different from those found in the econometrics literature, are consistent with the (rather broad) range of results reported in previ-
Januaxy 1992, Vol. 82, No. 1
ous studies of smokers' sensitivity, or responsiveness, to cigarette price increases. Specifically, Peterson et al. calculated an implied price elasticity of demand of -0.49, which means that a 10% increase in the price of cigarettes will reduce per capita cigarette consumption byjust under 5%. While these figures are no doubt impressive, they may present a somewhat optimistic view of the ability of excise taxes to reduce cigarette consumption, which, in turn, may lead legislators and policymakers to put too many eggs in the excise tax basket. Although the epidemiologic approach used by Peterson et al. has produced an elasticity estimate that is in the ballpark of other such estimates, their method may have failed to control for factors that also affect cigarette consumption (e.g., local and state restrictions on smoking in public places, years of schooling, demographic characteristics). Consequently, the effects attnbuted to tax-induced price changes may in reality be due to the influence of other variables that were not captured in the authors' model but that are correlated with cigarette prices and/or cigarette consumption. For example, recent studies indicate that state and local regulations restricting smoking in public places have a significant influence on cigarette consumption and that such regulations are correlated with cigarette prices. Interestingly, although Peterson et al. acknowledge this possibility, they also note that the method used in their study does not allow them to account for the simultaneous effects of excise tax increases and regulations that restrict smoking in public places. However, in a subsidiary analysis, the authors reported finding no evidence of a strong relationship between state clean indoor air acts and per capita cigarette consumption. Peterson et al.'s conclusion that regulations restricting smoking in public places do not significantly affect cigarette consumption stands in stark contrast to one recent study, which applied econometric techniques to data on almost 100 000 individuals. These data were collected between 1970 and 1985 and were used to examine the effects of both excise tax increases and clean indoor air laws on cigarette consumption.7 After controlling for many factors known to influence cigarette consumption (including, of course, price), the authors were able to show that clean indoor air laws are quite effective in
achieving reductions in smoking. In particular, when a state or municipality increases the stringency of clean indoor air laws from restricting smoking in a handful of minor public places (e.g., waiting rooms, elevators) to restricting smoking in a broad range of public places (including restaurants, schools, andworksites), adult and teenage per capita cigarette consumption decrease by 6 and 40%, respectively. The same study also showed that both adults and teenagers are considerably less responsive to price increases than implied by the Peterson et al. results, with price elasticities for both adults and teenagers in the -0.2 range. However, when the variable measuring clean indoor air law stringency in the respondent's state of residence was excluded from the model, the price elasticity of demand essentially doubled, placing itwithin striking distance of the Peterson results. The point, then, is simply that if one fails to adequately account for the influence of these laws, one may be left with a biased view of the potential for excise taxes to reduce smoking. All of this is not to suggest that we should abandon our effort to raise cigarette excise taxes. On the contrary, because virtually all studies have indicated that smokers and prospective smokers are at least somewhat responsive to price increases (i.e., the price elasticity ofdemand is not zero), higher cigarette taxes will result in lower cigarette consumption and a subsequent improvement in the public's health. Additionally, because the price elasticity of demand is low, higher taxes will also prove to be a potent source of revenue for our financially-strapped federal, state, and local governments. It is important to note, however, that the findings reported in all studies of cigarette demand hold only for the range of prices observed throughout the country over the particular time periods studied. This means that we cannot say with any reasonable degree of confidence how both teenagers and adults would respond to a large tax increase, say one on the order of a dollar or two per pack. In this regard, we are likely to benefit from the experience of our Canadian neighbors: there, combined federal and provincial cigarette taxes have recently been raised to more than $3.00 per pack.
Editor's Note. See related article by Peter-
son et al. on page 94 of this issue.
American Journal of Public Health 19
Editoials
In the meantime, state and federal policymakers should not be lulled into believing that marginally higher cigarette taxes will deter teenage smoking and reduce adult smoking to an appreciable extent. If we are to make substantial progress in our attempt to transform our society into a smoke-free one, then we must, concomitantly, impose significantly higher cigarette excise taxes (preferably at the federal level to limit opportunities for interstate bootlegging) and pass additional legislation that restricts smoking in public places. With respect to excise tax increases, however, we must be mindful of the distributional consequences of higher taxes. More precisely, because low-income smokers do not appear to be any more responsive to higher cigarette prices than high-income smokers,7 higher excise taxes will result in disproportionate economic harm, and, in some cases, could lead poorer smokers to forgo food, shelter, and needed health care to fulfill the persistent and pernicious demands of their smoking habits. As a result, higher cigarette taxes should be accompanied by
measures to compensate the poor for the larger burden that they will necessarily have to bear. For example, federal and state income tax structures could be modified to facilitate such compensation. Alternatively, or in conjunction with income tax changes, effective smoking cessation programs could be targeted to lowincome smokers. In summary, although Peterson et al. provide yet further evidence that smokers are indeed responsive to cigarette price increases, this effect may be less pronounced than their results indicate. At the same time, the potential for regulations that restrict smoking in public places to achieve significant reductions in cigarette smoking appears to be promising. Legislators and policymakers at the local, state, and federal levels should be strongly encouraged to take action on both fronts. O
References 1. Styron W. A symposium: Cigarette ads and the press. 77Te Nation. 1987;244:283-286. 2. US Department of Health and Human Services. The health consequences of smoking:
cancer. A report of the surgeon general. Rockville, MD: US Department of Health and Human Services; 1982. 3. US Department of Health and Human Services. Reducing the health consequences of smoking: 25 years ofprogress. A report of the swgeon generaL Rockville, MD: US Departnent of Health and Human Services; 1989. 4. Centers for Disease Control. Smoking-attnbutable mortality and years of potential life lost-United States, 1984. MMWR. 1987;36:693-697. 5. Peterson DE, Zeger SL, Remington PL, Anderson HA. Evaluating state cigarette tax increases as interventions to reduce cigarette smoking: United States, 1955-1988. Am JPublic Health. 1992;82:94-96. 6. Schoenberg, EH. The demand curve for cigarettes. JBusiness. 1933;6:15-35. 7. Wasserman J, Manning WG, Newhouse JP, Winkler JD. The effects of excise taxes and regulations on cigarette smoking. J Health Econs. 1991;10:43-64.
Jefirey Wasserman PhD Jeffrey Wasserman is with the Health Policy Research Division of SysteMetrics/McGrawHill. Requests for reprints should be sent to Jeffrey Wasserman, PhD, SysteMetrics/ McGraw-Hill, 104 West Anapamu Street, Santa Barbara, CA 93101.
Edito,ial Transition On January 1, 1992, the editorship of this Journal passed to me. The responsibility and the credit for this issue and a few still to come do not belong to me, however. Michel Ibrahim has smoothed the transition with the gift of these several issues prepared in advance. I owe him gratitude not only for this but for the contributions he has made to the form and organization of the Journal. Mervyn Susser
20 American Journal of Public Health
January 1992, Vol. 82, No. 1
