Curbing the EpidemicGovernments and the Economics of Tobacco Control

Curbing the EpidemicGovernments and the Economics of Tobacco Control

The World BankThe World BankPresented by Prabhat Jha, on behalf of the Report team and the HumanPresented by Prabhat Jha, on behalf of the Report team and the Human

Development NetworkDevelopment Network

Why did the World Bank produce this report?Why did the World Bank produce this report?Economic arguments for, or against, tobacco control areEconomic arguments for, or against, tobacco control are

unclear and often debatedunclear and often debated

nn In 1957In 1957, British Chancellor of the Exchequer warned of, British Chancellor of the Exchequer warned of“the enormous contribution to the Exchequer from tobacco“the enormous contribution to the Exchequer from tobaccoduties and the serious effect on the Commonwealth...that aduties and the serious effect on the Commonwealth...that acampaign against smoking would have”campaign against smoking would have”

nn In 1996In 1996, an Asian Health Minister stated “cigarette, an Asian Health Minister stated “cigaretteproducers are making large contributions to our economy...producers are making large contributions to our economy...we have to think about workers and tobacco farmers”we have to think about workers and tobacco farmers”

Source: Pollock 1996, Tobacco Control 1996, The Economist 1997Source: Pollock 1996, Tobacco Control 1996, The Economist 1997

MethodologyMethodology

nn Consultation workshopsConsultation workshops: : Washington D.C.Washington D.C.1996, Beijing 1997, Cape Town 19981996, Beijing 1997, Cape Town 1998uu Proceedings publishedProceedings published

nn Background papers (17):Background papers (17): “Tobacco Control in“Tobacco Control inDeveloping Countries”, Oxford University PressDeveloping Countries”, Oxford University Pressuu Reviews of literatureReviews of literatureuu New ResearchNew Research

Outline of ReportOutline of Report

nnWhy intervene to control smoking?Why intervene to control smoking?nnWhich interventions are effective andWhich interventions are effective and

which are not?which are not?nnWhat are the costs of tobacco control?What are the costs of tobacco control?nn Key recommendationsKey recommendations

Why should governments intervene?Large and growing number of deaths from smokingWhy should governments intervene?

Large and growing number of deaths from smoking

World: Annual Tobacco deaths (in millions)World: Annual Tobacco deaths (in millions)

Source: Peto, Lopez, and others 1997; WDR 1993

2000 2030Developed 2 ~3Developing ~2 ~7World Total 4 ~10

u1 in 2 of long-term smokers killed by their addictionu1/2 of deaths in middle age (35-69)

Smoking is more common among the less educated

Smoking prevalence among men inChennai, India, by education levels

Smoking is more common among the less educated

Smoking prevalence among men inChennai, India, by education levels

Source: Gajalakshmi and others, background paper

64%58%

42%

21%

0%

20%

40%

60%

Il l i terate < 6 y e a r s 6-12yea r s

>12yea r s

L e n g t h o f s c h o o l i n g

Sm

okin

g pr

eval

ence

Smoking accounts for much of the mortality gapbetween rich and poor

Risk of death of a 35 year old male before age 70, by educationlevels in Poland 1996

Smoking accounts for much of the mortality gapbetween rich and poor

Risk of death of a 35 year old male before age 70, by educationlevels in Poland 1996

Source: Bobak and others, background paper; Jha and others 1999

5% 9%19%1%

1%

5%

21%22%

28%

0%

10%

20%

30%

40%

50%

60%

Higher Secondary Primary

Other causes

Attributed to SMOKINGbut would have diedanyway at ages 35-69Attributed to SMOKING

Why should governments intervene?Economic rationale or “market failures”

Why should governments intervene?Economic rationale or “market failures”nn Smokers do not know their risksSmokers do not know their risksnn Addiction and youth onset of smokingAddiction and youth onset of smokinguu Lack of information and unwillingness toLack of information and unwillingness to

act on informationact on informationuu Regret habit later, but many addictedRegret habit later, but many addicted

nn Costs imposed on othersCosts imposed on othersuu Costs of environmental tobacco smokeCosts of environmental tobacco smoke

and health costsand health costs

Tobacco addiction starts early in lifeTobacco addiction starts early in life

Source: Chinese Academy of Medicine 1997, Gupta 1996, US Surgeon General Reports, 1989 and 1994,Authors’ calculations

nn Every day 80,000 to 100,000 youthsEvery day 80,000 to 100,000 youthsbecome regular smokersbecome regular smokers

C h i n a (males,1996)

I n d i a (males, 1995)

U S (both sexes,

born 1952-61)

U S (both sexes,

born 1910-14)

0

20

40

60

80

100

15 20 25

Age

Cum

ulat

ive

upta

ke in

per

cent

Health costs from smokingHealth costs from smokingnn Annual costs are about 6 to 15 percent ofAnnual costs are about 6 to 15 percent of

total health costs in high-income countriestotal health costs in high-income countriesuu Differences in lifetime costs are smaller thanDifferences in lifetime costs are smaller than

annual costsannual costsuu Short-term cost escalationShort-term cost escalation

nn “Smokers pay their way” arguments are“Smokers pay their way” arguments arecomplex, and often misusedcomplex, and often misuseduu Low pension coverage in low/middle income Low pension coverage in low/middle income

countriescountries

Government roles in interveningGovernment roles in intervening

nn To deter children from smokingTo deter children from smokingnn To protect non-smokers from others’ smokeTo protect non-smokers from others’ smokenn To provide adults the needed information toTo provide adults the needed information to

make an informed choicemake an informed choiceuu First-best instrument, such as youth restrictions,First-best instrument, such as youth restrictions,

are usually ineffective. Thus, tax increases areare usually ineffective. Thus, tax increases arejustified, and are effective.justified, and are effective.

uu Tax increases are blunt instruments.Tax increases are blunt instruments.

Unless current smokers quit, smoking deathswill rise dramatically over the next 50 years

Unless current smokers quit, smoking deathswill rise dramatically over the next 50 years

0

340

520

70

500

220

190

0

100

200

300

400

500

1950 2000 2025 2050

Year

Toba

cco d

eath

s (mi

llion)

Baseline

If proportion ofyoung adultstaking up smokinghalves by 2020

If adultconsumptionhalves by 2020

Source: Peto and others, 1994; Peto, personal communication.

Which interventions are effective?Measures to reduce demand

Which interventions are effective?Measures to reduce demand

nn Higher cigarette taxesHigher cigarette taxesnn Non-price measuresNon-price measures: consumer: consumer

information, research, cigarette advertisinginformation, research, cigarette advertisingand promotion bans, warning labels andand promotion bans, warning labels andrestrictions on public smokingrestrictions on public smoking

nn Increased access to nicotine replacementIncreased access to nicotine replacement(NRT) and other cessation therapies(NRT) and other cessation therapies

Taxation is the most effective measureTaxation is the most effective measure

nn Higher taxes induce quitting and preventHigher taxes induce quitting and preventstartingstarting

nn A 10% price increase reduces demand by:A 10% price increase reduces demand by:uu 4% in high-income countries4% in high-income countriesuu 8% in low or middle-income countries8% in low or middle-income countries

nn Young people and the poor are the mostYoung people and the poor are the mostprice responsiveprice responsive

Cigarette price and consumption go inopposite trends

Real price of cigarettes and annual per adult cigarette consumption in South Africa1970-1989

Cigarette price and consumption go inopposite trends

Real price of cigarettes and annual per adult cigarette consumption in South Africa1970-1989

Source: Saloojee 1995

0.05

0.06

0.07

0.08

0.09

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988

Year

Cig

aret

te c

onsu

mpt

ion

per

adul

t (in

pac

ks)

0.7

0.8

0.9

1

1.1

1.2

1.3

Rea

l Pri

ce

Real price

Consumptionper adult

What is the “right” level of tax?What is the “right” level of tax?

nn Complex questionComplex questionuu Depends on various factors, degree to which Depends on various factors, degree to which

society wishes to protect children, revenuesociety wishes to protect children, revenueconsiderations, etc.considerations, etc.

nn Useful yardstick: where comprehensiveUseful yardstick: where comprehensiveprograms used, tax is at least 2/3 to 4/5 ofprograms used, tax is at least 2/3 to 4/5 ofretail price.retail price.

Cigarette tax levels are lower inlow or middle-income countriesCigarette tax levels are lower inlow or middle-income countries

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

High Income Upper MiddleIncome

Lower MiddleIncome

Low Income

Countries by income

Aver

age

pric

e or

tax

per p

ack

(US$

)

0

10

20

30

40

50

60

70

80

Tax

as a

per

cent

age

of p

rice

Average price in US$Average tax in US$Tax as a percentage of price

Source: Authors’ calculations

Non-price measures to reduce demandNon-price measures to reduce demand

nn Increase consumer informationIncrease consumer information::dissemination of research findings, warningdissemination of research findings, warninglabels, counter-advertisinglabels, counter-advertising

nn Comprehensive ban on advertising andComprehensive ban on advertising andpromotionpromotion

nn Restriction on smoking in public and workRestriction on smoking in public and workplacesplaces

Comprehensive advertising bans reduce cigarette consumption Consumption trends in countries with such bans vs. those with no bans

(n=102 countries)

Comprehensive advertising bans reduce cigarette consumption Consumption trends in countries with such bans vs. those with no bans

(n=102 countries)

No Ban

Ban

1450

1500

1550

1600

1650

1700

1750

1981 1991

Year

Cig

aret

te c

onsu

mpt

ion

per

capi

ta

Source: Saffer, background paper

Potential impact of a price increase of 10%and a package of non-price measures

Potential impact of a price increase of 10%and a package of non-price measures

Region Change in number ofsmokers (millions)

Change in number ofdeaths (millions)

Priceincreases

Non-pricemeasures

Priceincreases

Non-pricemeasures

Low/MiddleIncome

-36 -19 -9 -4

HighIncome

-4 -4 -1 -1

World -40 -23 -10 -5

Source: Ranson and others, background paper

NRT and cessation therapiesNRT and cessation therapies

nn NRTs double the effectiveness of cessationNRTs double the effectiveness of cessationefforts and reduce individuals’ withdrawal costsefforts and reduce individuals’ withdrawal costs

nn Governments may widen access to NRT andGovernments may widen access to NRT andother cessation therapies by:other cessation therapies by:

uu Reducing regulationReducing regulationuu Conducting more studies on cost-effectivenessConducting more studies on cost-effectiveness

(especially in low/middle income countries)(especially in low/middle income countries)uu Considering NRT subsidies for poorest smokersConsidering NRT subsidies for poorest smokers

Which interventions are ineffective atreducing consumption?

Most measures to reduce supply

Which interventions are ineffective atreducing consumption?

Most measures to reduce supply

nn ProhibitionProhibitionnn Youth access restrictionsYouth access restrictionsnn Crop substitutionCrop substitutionnn Trade restrictionsTrade restrictionsnn Control of smuggling is the only exceptionControl of smuggling is the only exception

and it is the key supply-side measureand it is the key supply-side measure

What are the costs of tobacco control?What are the costs of tobacco control?

nn Revenue lossRevenue loss: : likely to have revenue gainslikely to have revenue gainsuu a 10% tax increase would raise revenue by 7%a 10% tax increase would raise revenue by 7%

nn Job lossJob loss: : temporary, minimal and gradualtemporary, minimal and gradual

nn Possible smugglingPossible smuggling: : crack down on criminalcrack down on criminalactivity, not lower taxesactivity, not lower taxes

nn Cost to individuals, especially the poor:Cost to individuals, especially the poor:partially offset by lower consumptionpartially offset by lower consumption

As tobacco tax rises, revenue rises tooReal price and tobacco revenues in the U.K., 1971-1995

As tobacco tax rises, revenue rises tooReal price and tobacco revenues in the U.K., 1971-1995

6000

6500

7000

7500

8000

8500

9000

1971 1974 1977 1980 1983 1986 1989 1992 1995

Year

Taxa

tion

reve

nue

(in m

iilio

n of

pou

nd s

terl

ing)

£ 1.40

£ 1.60

£ 1.80

£ 2.00

£ 2.20

£ 2.40

£ 2.60

£ 2.80

£ 3.00

Pri

ce (

in 1

994

poun

d st

erlin

g)

TAX REVENUE

PRICE

Source: Townsend 1998

Studies on the employment effects of dramaticallyreduced or eliminated tobacco consumption

Studies on the employment effects of dramaticallyreduced or eliminated tobacco consumption

Type of country Name and year Net change as %of economy in base

year givenNet Exporters US (1993) 0%

UK (1990) +0.5%

Zimbabwe (1980) -12.4%

Balanced TobaccoEconomies

South Africa (1995) +0.4%

Scotland (1989) +0.3%

Net Importers Bangladesh (1994) +18.7%

Source:Buck and others, 1995; Irvine and Sims, 1997; McNicoll and Boyle 1992, van der Merwe and others, background paper; Warner and others 1996

How cost-effective are tobacco controlmeasures?

US dollars per DALY saved

How cost-effective are tobacco controlmeasures?

US dollars per DALY savedRegion Price

increases of10%

Non-pricemeasures

witheffectiveness

of 5%

NRT(publiclyprovided)with 25%coverage

Low / middleincome

4 to 17 68 to 272 276 to 297

High Income 161 to 645 1,347 to5,388

746 to 1,160

Note: 3% discount rate, costs for non-price measures and all benefits projected over 30 yearsSource: Ranson and others, background paper

SummarySummarynn Tobacco deaths worldwide are large and growing,Tobacco deaths worldwide are large and growing,

and have higher burdens in the poorand have higher burdens in the poor

nn Specific market failures support governmentSpecific market failures support governmentinterventionintervention

nn Demand measures, chiefly tax increases,Demand measures, chiefly tax increases,information, and regulation are most effective toinformation, and regulation are most effective toreduce consumptionreduce consumption

nn Control of smuggling is the major supply-sideControl of smuggling is the major supply-sideinterventionintervention

nn Tobacco control is cost-effectiveTobacco control is cost-effective

Key recommendationsKey recommendationsnn GovernmentsGovernments:: adopt multi-pronged strategy,adopt multi-pronged strategy,

tailored to each countrytailored to each countryuu cigarette tax increases: 2/3 to 4/5 of retail pricecigarette tax increases: 2/3 to 4/5 of retail priceuu consumer information, research, advertising andconsumer information, research, advertising and

promotion bans, warning labels and restrictions onpromotion bans, warning labels and restrictions onpublic smokingpublic smoking

uu widen access to NRT and other cessation therapieswiden access to NRT and other cessation therapies

nn International agenciesInternational agencies:: review policies,review policies,sponsor research, address cross-border issuessponsor research, address cross-border issuesand support the FCTCand support the FCTC