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Abstract
Objective Smoke-free policies aiming to improve quality of indoor air and significantly reduce exposure to secondhand smoke in the hospitality industry are faced with strong opposition from the tobacco industry and hospitality venue owners claiming that they lead to reductions of revenues. The objective of our study was to examine the impact of a recently introduced smoke-free legislation on the revenues of the hospitality industry in Cyprus.
Methods Anonymous information on revenues was obtained from the Cyprus government value added tax office for the entire hospitality industry in Cyprus including hotels, bars, restaurants and cafeterias between 2005 and 2011. Panel data methodology was used to examine the effect of a smoke-free legislation, on tourism, businesses’ revenues adjusting for gross domestic product, inflation, unemployment rate, tourists’ arrivals, seasonal variation and the economic crisis.
Results Our study showed that the implementation of the smoke-free policy did not have negative effects on the hospitality industry profitability.
Conclusions We conclude that even in regions with relatively high smoking rates, pro-smoking societal attitudes and weak social norms against tobacco control, and even during periods of economic crisis, smoke-free legislation does not impact negatively on hospitality industry revenues and if anything may lead to a small positive increase.
- Economics
- Social marketing
- Public opinion
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Introduction
Tobacco use is one of the most important preventable risk factors contributing to significant morbidity and mortality around the world. The WHO1 estimates that one person dies every six seconds due to smoking-related diseases, and that tobacco use accounts for almost six million deaths each year. These figures are expected to escalate unless preventive action is taken to reduce the burden of tobacco use in our societies.
Furthermore, additional burden accumulates from exposure to secondhand smoke (SHS). In order to minimise the risk from SHS exposures, WHO initiated the Framework Convention on Tobacco Control (FCTC) in 2003, a treaty that requires the introduction of smoke-free policies in public settings including hotel and tourism industry venues.2 Restrictive policies to protect employees and customers from environmental tobacco smoke have been in place for many years in the USA and other countries, and the evidence suggests that they provide significant protection to employees and non-smoker clients from the harmful effects of SHS exposure, encourage quitting behaviour among smokers, and de-normalise tobacco use in the community.3–6
Despite the well-documented effects of smoke-free policies on public health, there have been voices opposing this approach in fear of losing revenues and dissatisfying smoker clients especially in the hospitality industry.7 ,8 In many cases the opposition to smoke-free policies is organised and voiced by the tobacco industry lobbying, but their arguments have lost credibility in light of longitudinal studies showing that smoke-free policies do not have negative impact on the financial revenues in key hospitality venues including bars, pubs, and restaurants.9–13 In fact, many studies show that, compared to settings where smoking is allowed, smoke-free businesses enjoy greater revenues resulting from reduced sick leaves and smoking breaks among employees who smoke, and increased visits from health-conscious customers looking for smoke-free entertainment opportunities.14–16
Nevertheless, most of the aforementioned studies have been conducted in countries with a long history of tobacco control measures and smoking prevention strategies. As such, the reported financial viability of the smoke-free policies in public places may reflect the outcomes of ongoing efforts to educate people about the harmful effects of smoking and increase support for smoke-free policies and may not be associated with the implementation of the policies per se. Furthermore, the economic crisis of the last few years reinstates the arguments for lost revenues, and is often used to back up the tobacco industry's claims that smoke-free policies will intensify the negative effects of the crisis by further reducing revenues and clientele. So far, a very limited number of studies focusing on the economic impact of smoke-free legislation on the hospitality and tourism industry have been conducted in countries where smoking rates are still comparably high, and social norms against smoking are rather weak, particularly during the current economic crisis.17 ,18
Cyprus has a relatively high percentage of smokers in the general population (about 35%)19 and only quite recently (2010) the Cyprus government has introduced a comprehensive smoke-free policy covering all indoor settings including hotels, bars, restaurants and cafeterias. Therefore, our study aimed at obtaining reliable financial information in order to perform a valid econometric analysis to assess the potential trends in hospitality industry revenues before and after the implementation of the smoke-free policy.
Methods
Data collection process
Anonymous data on revenues from hotels, bars, restaurants, traditional cafes and other cafeterias were obtained from the value added tax (VAT) authorities of Cyprus, while the gross domestic product (GDP in millions of Euros), inflation (% points), unemployment rate (% points) and tourists’ arrivals (in thousands) were obtained from the Department of Statistical Service of Cyprus. The data comprised of the revenues (in thousands of Euros) of 69.899 businesses (hotels 6.866, bars 10.955, restaurants 42.198, traditional cafes 3.148 and other cafeterias 6.732). The above data covered the period from the first quarter of 2005 to the fourth quarter of 2011 including all active tourism businesses in Cyprus, which are required to report VAT information quarterly every year.i This was the longest available period of available data at the time we were conducting our research.
Econometric modelling
To examine the effect of the smoke-free legislation, trends in tourism businesses’ revenues were modelled with a dummy variable for the implemented smoke-free legislation using Panel Data methodology.ii Panel data methodology have many advantages including (1) control for individual heterogeneity, (2) provision of more informative data, more variability, more degrees of freedom and more efficiency with less collinearity among the variables, (3) better opportunities to study the dynamics of adjustment, (4) evaluation of measure effects that are simply not detectable in pure cross-sectional or pure time-series data, and (5) opportunities to construct and test more complicated behavioural models compared to simple cross-sectional or time-series data.
Appropriate explanatory variables for GDP, inflation, unemployment rate, tourists’ arrivals, and seasonal and economic crisis dummies were also included. Under this conceptual framework we were able to determine whether revenues declined, remained stable or improved after the implementation of the smoke-free legislation. Below we delineate the exact specification of the econometric model:
where: Revenuei,t, Revenue of each type of business during quarter t (entered as a natural logarithm); TIMEt, simple quarterly count variableiii;
LAWt, dummy variable for smoke-free law. It takes values equal to 0 before the law and 1 afterwards; CRISISt, This is a binary variable that takes the values of zero (before crisis) and one (after crisis). It accounts for the adverse effects of the recent global financial crisis. It indicates the period that the Cypriot economy was in recession and takes values equal to 0 before 2008 and 1 afterwardsiv; Qj,t, simple quarterly dummies to capture seasonality in the data (j=2, 3, 4)v; Xi,t, macroeconomic variables that significantly improve the fit of the model (GDP, and tourist arrivals—both entered as natural logarithms, inflation rate and unemployment rate); i refers to firm and t to time.
A variety of techniques were considered for the panel estimations. Initially, we estimated the econometric model using pooled ordinary least squares (OLS) with robust SEs adjusted for heteroskedasticity and serial correlation. Next, we considered the random effects (RE) estimator and controlled for unobserved business-specific effects using the fixed effects (FE) estimator. In both cases we report robust SEs adjusted for arbitrary serial correlation and heteroskedasticity. An additional way to correct for serial correlation in the errors is to assume that the errors follow an autoregressive process [AR(1)]. We therefore estimated parametric models with the fixed and RE generalised least squares estimators that allowed for AR(1) structure of the error term. Finally, for robustness, we also estimated the models with feasible generalised least squares with panel heteroskedasticity and panel specific autocorrelation with AR(1) disturbances. The above techniques constitute a standard and well-accepted methodology in the international literature. RE account for clustered and correlated data while fixed effects account for all effects that are attributed to individual characteristics.
Furthermore, for robustness checks we performed (1) a subset analysis on certain types of hospitality businesses in order to assess how each type of tourism business reacted to the smoke-free legislation and (2) the same statistical analyses used in our study applied on sectors that are not likely to be affected by the smoke-free policy implementation (namely financial services, construction, manufacturing and agriculture).
Results
Empirical findings
Information used in the econometric analyses consisted of an unbalanced panel of 69.899 observations on VAT reports from all hospitality businesses in Cyprus. In figure 1 we delineate all variables used in estimations (in aggregate level) in association with time, with the vertical line denoting the period where the smoke-free policy was implemented (1 January 2010). A number of observations deserve particular attention. More specifically, we observed that tourism businesses’ revenues are trending upwards until the middle of 2009 and then decline. Similar behaviour was observed for the GDP with the beginning of 2009 marking the crisis period. Inflation rate fluctuates around 0.5% and 1.5% while tourists’ arrivals declined dramatically from 2005 to 2009 with 2010 and 2011 having the opposite behaviour.vi Finally, while the unemployment rate was stable for the period from 2005 to 2008, unemployment for the rest of the period increased dramatically.
All variables used in estimations (in aggregate level) in association with time, with the vertical line denoting the period where the smoke-free policy was implemented (1 January 2010).
In table 1 we present the descriptive statistics of the main variables for the whole period, before and after the implementation of the smoke-free policy. As it can be inferred, only inflation and unemployment rates experienced a substantial increase between the two periods. The rest of the variables remained stable throughout the whole period. At the descriptive level, these figures do not provide evidence that the smoke-free policy affected the revenues of tourism businesses in a negative fashion.
Summary statistics of variables
However, descriptive statistics may conceal important information that cannot be captured. Therefore, we proceeded with the estimation of the model using panel data techniques in order to examine whether the smoke-free policy affected tourism businesses. The results of the model are presented in table 2. All six columns verify that the legislation on the smoke-free policy had a positive effect (around 0.10%) on the revenues of the tourism businesses. At the same time, the dummy variable that captured the effects of the global financial crisis was negative and highly significant. This result suggests that it is the general economic situation that adversely affected the performance of tourism industry and not the implementation of the smoke-free policy.
Tobacco control effects in tourism business using revenues
In addition, seasonal dummies suggested that there was a strong seasonal effect in revenues with the second and third quarter indicating greater revenues for tourism businesses compared to the first quarter while during the fourth quarter the opposite holds. As for the control variables, business cycle fluctuations captured by the GDP and inflation had essentially no effect on revenues. On the contrary, tourists’ arrivals had a significant positive effect, suggesting that more tourists lead to higher revenues, while in contrast to tourists’ arrivals an increase in the unemployment rate had a negative and highly significant impact on revenues.
Finally, because revenues in tourism businesses could be affected by changes in income, price, increased population, and tourists’ arrivals, we performed robustness checks in order to explore the above hypotheses. Many of these factors could be controlled for by including them in the model, however there is always a problem of omitting important variables. Therefore, to alleviate this problem we used, as an alternative dependent variable, the ratio of revenues to consumption.20 ,vii In that manner, this ratio should be moved into positive or negative direction according to the effect of the smoke-free policy, but it should not change to the movements of other variables that influence the whole economy. In other words, we removed the possible trend from revenues that is attributed to factors that affect all variables.viii
In table 3 we present the results of our model under various techniques. In line with original estimations, all six columns verified that the smoke-free legislation had positive effects on tourism industry revenues. A factor that may have adversely affected industry revenues is the global financial crisis (with its coefficient being negative; however insignificant for all cases). In tables 4 and 5 we present the results of subset analyses on certain types of hospitality businesses. Indeed, hotels appear to react differently to the smoke-free legislation, probably because they had already adopted their own smoke-free policies before the legislation went into effect. The other types of hospitality businesses showed similar (positive) reaction to the smoke-free legislation supporting the overall results of our study. Finally, we replicated the statistical analyses of our study (table 6) for those sectors (financial services, construction, manufacturing and agriculture) that are not likely to be affected by the smoke-free policy implementation. Results revealed statistically non-significant effects for the smoke-free policy (as expected) and negative effects from the recent global financial crisis. Therefore, the additional analyses support our main findings regarding the positive effects of the smoke-free policy on the tourism industry revenues.
Tobacco control effects in tourism business using the ratio of revenues to consumption
Results from different type of business
Results from different type of business
Tobacco control effects in other sectors of the economy using revenues
Discussion
To our knowledge, this is the second study in Cyprus, and one of very few studies in the Eastern Mediterranean region, to examine the impact of a recently enacted smoke-free legislation on the revenues of the hospitality industry including hotels, bars, restaurants and cafeterias. Not surprisingly, and in line with many other studies around the world, we found that the hospitality industry revenues were not affected in a negative way by the implementation of the smoke-free policy in Cyprus. If anything, there was a small positive increase in revenues that could be potentially attributed to the smoke-free policy.
The results of the present study are in line with past research showing that smoke-free policies tend to have a null effect on revenues in the hospitality and tourism industry.9–11 ,13 Longitudinal studies using revenues and VAT data have consistently shown that, wherever they were applied, smoke-free policies in public places do not hurt businesses, and after a while they are gradually supported by the local cultures, and among diverse community groups.5 ,21–23
The counterargument from tobacco lobbyists in Cyprus was referring to the smoke-free policy claiming that it would exert a significant negative impact on revenues leading to consecutive layoffs in the hospitality and tourism industry businesses. These arguments were echoed by representatives of hospitality and tourism associations in the national media, and were framed by discussion about the effects of the financial crisis on the local hospitality and tourism industry. Our findings did not provide support for the above arguments. Instead, the smoke-free policy did not affect financial revenues in a negative fashion, and the only observed change in revenues after the implementation was a positive one—suggesting that progressively smoke-free policies could even return greater revenues than expected.
From a public health perspective, smoke-free policies are considered a powerful tool in protecting the health of employees in the hospitality and tourism venues, and in reducing the cumulative risk of cancer from exposure to SHS. They also encourage smoking cessation among smokers, and are associated with household anti-smoking norms.24 ,25 In addition, proper education and awareness campaigns on the benefits of smoke-free policies increase community support even among smokers.15 ,26 Finally, comprehensive total smoke-free policies tend to be more effective and supported by the community as compared to partial smoking bans.27
Our study is based on solid financial data and highly reliable information obtained from the Cyprus Ministry of Finance, VAT office, covering a long period of time with thousands of quarterly observations, lending important credibility to our estimates. Furthermore, panel data methodology was used and several models were estimated adjusting for important parameters in order to evaluate the individual effect of the smoke-free policy on the hospitality industry revenues. Based on the above approach, we believe that our study provides important evidence supporting that, even in regions with relatively high smoking rates, pro-smoking societal attitudes and weak social norms against tobacco control, and even during periods of economic crisis, smoke-free legislation does not impact negatively on the hospitality industry revenues and if anything it may lead to a small positive increase.
What this paper adds
This paper examines the impact of a recently enacted smoke-free legislation on the revenues of the hospitality industry including hotels, bars, restaurants and cafeterias in Cyprus. One of a few studies implemented on the above important topic in this region of the world.
The study showed that the implementation of the smoke-free policy in Cyprus did not have negative effects on the hospitality industry profitability. Despite that smoking rates are still comparably high, and social norms against smoking are rather weak, particularly during the current economic crisis.
Acknowledgments
The authors are indebted to Mrs. Chrysta Kapetaniou who provided instrumental support during the data collection process.
References
Footnotes
Contributors CSS and ESS conceived of the idea for the study. All authors contributed to the study design and the supervision of the data collection process. CSS supervised all aspects of the project and had primary responsibilities for data collection. CSS and MAT were responsible for data management and performed the statistical analyses. All authors reviewed and interpreted the statistical analyses. CSS, ESS and LL wrote the first draft of the manuscript. All authors contributed to the final version of the manuscript. All authors reviewed and approved of the final version of the manuscript.
Funding The study was co-funded by the Republic of Cyprus and the European Regional Development Fund through the Cyprus Research Promotion Foundation.
Competing interests None.
Provenance and peer review Not commissioned; externally peer reviewed.
↵i To obtain this data set, a special permit was granted by the Ministry of Finance of Cyprus.
↵ii Advantages of Panel Data methodology can be found in Baltagi BH (2008), John Wiley and Sons.
↵iii A quadratic time trend was included in the analysis, however, it was statistically insignificant. Hence, we decided to adopt a more parsimonious specification that only includes a linear time trend.
↵iv Official indications place the economic crisis in Cyprus at the beginning of 2008.
↵v Quarter 1 was considered the reference category (omitted to avoid multi-collinearity problems; therefore, the effect of this quarter on revenues is included in the intercept term).
↵vi Inflation rate is given as the percentage change of consumer price index (CPI) from quarter to quarter.
↵vii Data on consumption was obtained from the Department of Statistical Service of Cyprus.
↵viii For that reason, we removed the time variable (that captures possible trends) from estimation process.