Elsevier

Public Health

Volume 122, Issue 1, January 2008, Pages 3-10
Public Health

Original Research
Raising taxes to reduce smoking prevalence in the US: A simulation of the anticipated health and economic impacts

https://doi.org/10.1016/j.puhe.2007.02.020Get rights and content

Summary

Objective

To estimate health and economic outcomes of raising the excise taxes on cigarettes.

Methods

We use a dynamic computer simulation model to estimate health and economic impacts of raising taxes on cigarettes (up to 100% price increase) for the entire population of the USA over 20 years. We also perform sensitivity analysis on price elasticity.

Results

A 40% tax-induced cigarette price increase would reduce smoking prevalence from 21% in 2004 to 15.2% in 2025 with large gains in cumulative life years (7 million) and quality adjusted life years (13 million) over 20 years. Total tax revenue will increase by $365 billion in that span, and total smoking-related medical costs would drop by $317 billion, resulting in total savings of $682 billion. These benefits increase greatly with larger tax increases, and tax revenues continue to rise even as smoking prevalence falls.

Conclusions

Increasing taxes on cigarettes is a unique policy intervention that reduces smoking prevalence, generates additional tax revenue, and results in significant savings in medical care costs.

Introduction

Cigarette smoking is now widely acknowledged as the single leading preventable cause of death in the United States.1 Smoking causes more fatalities each year in the US than AIDS, alcohol, cocaine, heroin, homicide, suicide, motor vehicle crashes, and fires combined.2 On average, smokers die more than six years before non-smokers from causes such as cardiovascular disease, cancer, and emphysema.3

Adverse health effects of tobacco use are estimated to have caused approximately $157 billion in average annual health-related economic losses between the years 1995 and 1999. Of these losses, $82 billion are due to annual smoking-attributable productivity costs and $75 billion are due to smoking-attributable medical expenditures in ambulatory care, hospital care, prescription drugs, nursing homes, and other care facilities.4

Increasing taxes on cigarettes is a widely discussed policy option for reducing smoking prevalence.5, 6, 7 This paper examines the health and economic consequences of a reduction in smoking prevalence by increasing federal taxes on cigarettes. Numerous studies have identified that while smoking cigarettes is addictive, price influences the decision to start and quit smoking. This is especially true for adolescents, who are more sensitive to cigarette prices compared to adults.8, 9 Estimates of price elasticity for smoking participation using individual level data generally range from −0.20 to −0.70 for various age groups.10

For decision makers considering the policy option of increasing taxes to reduce smoking prevalence, it is important to know both health and economic impacts over the policy horizon. So far, most studies either focus on the reduction in smoking prevalence and mortality following a tobacco tax increase11 or focus on economic impacts such as tax revenues.5 In this work we estimate both health impacts (smoking prevalence and quality adjusted life years—QALYs) and economic impacts (savings in medical care costs and increase in tax revenue) over a time horizon of 20 years (up to 2025).

In our previous work7 we estimated health and economic impacts of tax increase on cigarettes in California. In this paper we have expanded our work to national level and we have performed a sensitivity analysis on price elasticity. The paper is organized as follows. We first describe the simulation model that we developed followed by details of the data used in the simulation model and the calculation of price elasticity. We then proceed to present the details on the modeling approach, model calibration, and assumptions made to estimate the health and economic impacts of increasing taxes on cigarettes. Model results for different tax increases are reported and the paper concludes with the discussion of results.

Section snippets

Methods

To estimate the health and economic impacts of tobacco control policies, we developed a dynamic computer simulation model. This model has been used for analysis of different tobacco control policies at state and national level including: raising legal smoking age to 2112, 13; taxes on cigarettes7; lower nicotine cigarettes14; low tar cigarettes15; and comparison of these policies.16, 17 It is a flexible model that can be used to estimate the health and economic impacts of multiple interventions

Results

Table 2 shows the health and economic impacts of cigarette price changes. We simulated an increase in prices due to federal taxes from 0% to 100%, with 0% change representing the status quo (current tax levels). For example, if federal taxes increase the average price of cigarettes by 40%, overall prevalence will drop to 15.2% after 20 years compared to a prevalence level of 21.1% in 2004. Additionally, it would result in a cumulative gain of 6.95 million life years and 12.92 million QALYs.

Discussion

The wisdom of raising taxes on cigarettes has been hotly debated. Advocates of tax increases point out that increasing cigarette taxes may mean better health for those who will quit and savings in terms of medical care costs. Detractors point to loss of revenue earned from taxes due to a decreasing number of smokers. The value of computer simulation is that it offers a way to combine both concerns and the best available data into a single model to estimate the likely cumulative public health

Acknowledgments

Financial support for this research was provided by the National Institute of Drug Abuse through a grant (PHS Grant DA 13332) to the University of California, Irvine, Transdisciplinary Tobacco Use Research Center (TURC) http://www.tturc.uci.edu/.

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