Curbing the EpidemicGovernments and the Economics of Tobacco Control

The World BankPresented by Prabhat Jha, on behalf of the Report team and the Human Development Network

Why did the World Bank produce this report?Economic arguments for, or against, tobacco control are unclear and often debated In 1957, British Chancellor of the Exchequer warned of the enormous contribution to the Exchequer from tobacco duties and the serious effect on the Commonwealth...that a campaign against smoking would haveIn 1996, an Asian Health Minister stated cigarette producers are making large contributions to our economy... we have to think about workers and tobacco farmers

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

MethodologyConsultation workshops: Washington D.C. 1996, Beijing 1997, Cape Town 1998 Proceedings publishedBackground papers (17): Tobacco Control in Developing Countries, Oxford University Press Reviews of literatureNew Research

Outline of ReportWhy intervene to control smoking?Which interventions are effective and which are not?What are the costs of tobacco control?Key recommendations

Why should governments intervene?Large and growing number of deaths from smoking World: Annual Tobacco deaths (in millions)Source: Peto, Lopez, and others 1997; WDR 199320002030Developed 2 ~3Developing ~2 ~7World Total 4 ~101 in 2 of long-term smokers killed by their addiction1/2 of deaths in middle age (35-69)

Smoking is more common among the less educated

Smoking prevalence among men in Chennai, India, by education levelsSource: Gajalakshmi and others, background paper

Smoking accounts for much of the mortality gap between rich and poorRisk of death of a 35 year old male before age 70, by education levels in Poland 1996Source: Bobak and others, background paper; Jha and others 1999

Chart6

0.0480.00640.2099

0.08870.01310.2195

0.1860.04520.2846

Attributed to SMOKING

Attributed to SMOKING but would have died anyway at ages 35-69

Other causes

UK

4313 1996 M 26.91 6.81 6.03

4316 1996 M 43.35 18.64 15.68

4401 1996 M 20.56 3.88 3.52

4402 1996 M 31.48 11.17 9.84

4231 1996 M 26.43 5.44 4.80

4234 1996 M 50.09 22.34 18.13

4237 1996 M 32.13 10.18 8.87

4238 1996 M 51.58 23.12 18.60

2451 1996 M 36.93 14.98 12.97

2452 1996 M 35.87 13.59 11.75

2453 1996 M 19.71 4.30 3.94

2091 1991 M 19.98 5.57 5.13

2092 1991 M 22.22 6.66 6.09

2093 1991 M 24.74 8.23 7.46

2094 1991 M 27.43 10.27 9.26

2095 1991 M 35.12 14.71 12.89

UK

0.03520.00360.1668

0.06030.00780.201

0.09840.01330.2031

0.15680.02960.2471

Attributed to SMOKING

Attributed to SMOKING but would have died anyway at ages 35-69

Other causes

Sheet1

0.0480.00640.2099

0.08870.01310.2195

0.1860.04520.2846

Attributed to SMOKING

Attributed to SMOKING but would have died anyway at ages 35-69

Other causes

England

TOTAL RISKAttributed to SMOKINGAttributed to SMOKING but would have died anyway at ages 35-69Other causes

I/II21%4%4%0%17%

IIIN27%7%6%1%20%

IIIM/IV31%11%10%1%20%

V43%19%16%3%25%

Poland

Attributed to SMOKINGAttributed to SMOKING but would have died anyway at ages 35-69Other causes

Higher26%5%5%1%21%

Secondary32%10%9%1%22%

Primary52%23%19%5%28%

USA

Attributed to SMOKINGAttributed to SMOKING but would have died anyway at ages 35-69Other causes

Why should governments intervene?Economic rationale or market failuresSmokers do not know their risksAddiction and youth onset of smoking Lack of information and unwillingness to act on informationRegret habit later, but many addictedCosts imposed on others Costs of environmental tobacco smoke and health costs

Tobacco addiction starts early in lifeSource: Chinese Academy of Medicine 1997, Gupta 1996, US Surgeon General Reports, 1989 and 1994, Authors calculationsEvery day 80,000 to 100,000 youths become regular smokers

Chart2

25.3164556962132520

74.6835443038467766.2

92.41968665937094.878

China

India

US (born 1952-'61)

US (born1910-'14)

Age

Cumulative uptake in percent

China (males,1996)

India (males, 1995)

US (both sexes, born 1952-61)

US (both sexes, born 1910-14)

15-25

152025303540455055606570

206073777978777571676461

185466697170696764605855721

25769297100

age1520253035

China25759297100

India1346708590

US (born 1952-'61)257794.899100

US (born1910-'14)2066.278

15-25

China

India

US (born 1952-'61)

US (born1910-'14)

Age

Cumulative uptake in percent

China (males,1996)

India (males, 1995)

US (both sexes, born 1952-61)

US (both sexes, born 1910-14)

15-30

152025303540455055606570

206073777978777571676461

185466697170696764605855721

25769297100

1520253035

China25769297100

India1346708590

US36809399100

15-30

000

000

000

000

000

China

India

US

Age

Smokers (%)

Culmulative distribution of smoking initiation age in China, India and the US

Health costs from smokingAnnual costs are about 6 to 15 percent of total health costs in high-income countriesDifferences in lifetime costs are smaller than annual costsShort-term cost escalationSmokers pay their way arguments are complex, and often misused Low pension coverage in low/middle income countries

Government roles in interveningTo deter children from smokingTo protect non-smokers from others smokeTo provide adults the needed information to make an informed choiceFirst-best instrument, such as youth restrictions, are usually ineffective. Thus, tax increases are justified, and are effective.Tax increases are blunt instruments.

Unless current smokers quit, smoking deaths will rise dramatically over the next 50 yearsSource: Peto and others, 1994; Peto, personal communication.

Which interventions are effective?Measures to reduce demandHigher cigarette taxesNon-price measures: consumer information, research, cigarette advertising and promotion bans, warning labels and restrictions on public smokingIncreased access to nicotine replacement (NRT) and other cessation therapies

Taxation is the most effective measure Higher taxes induce quitting and prevent startingA 10% price increase reduces demand by:4% in high-income countries8% in low or middle-income countriesYoung people and the poor are the most price responsive

Cigarette price and consumption go in opposite trendsReal price of cigarettes and annual per adult cigarette consumption in South Africa 1970-1989 Source: Saloojee 1995

Real price

Consumption per adult

Cigarette consumption per adult (in packs)

Real Price

1.3

1.2

1.1

1

0.9

0.8

0.7

Year

1988

1986

1984

1982

1980

1978

1976

1974

1972

1970

0.09

0.08

0.07

0.06

0.05

What is the right level of tax? Complex question Depends on various factors, degree to which society wishes to protect children, revenue considerations, etc.Useful yardstick: where comprehensive programs used, tax is at least 2/3 to 4/5 of retail price.

Cigarette tax levels are lower in low or middle-income countriesSource: Authors calculations

Chart2

3.05146771452.063535518867.6243602069

1.190.651

0.540.2546.4

0.330.1340.4

Average price in US$

Average tax in US$

Tax as a percentage of price

Countries by income

Average price or tax per pack (US$)

Tax as a percentage of price

Figure 7.1.b

GDP/capitaPrice/pack

CanadaCanadaCPIReal IncomeReal PriceConsumptiondaily consumptionall poppop 15+

198919901.74951605242.919520949.21001689733.0681.884.48644000995.8323720128

199020443.85718891013.2810020443.863.2880.784.42638619095.7543020481

199120770.03371625184.4610619665.764.2369.523.80950525154.9523568269

199219816.41053892515.3910718484.495.0360.263.30203122924.2926405979

199318914.48606228636.2610917324.185.7452.162.85831782323.7158131701

199418601.16330416052.9510917005.692.7077.264.23355155175.5036170172

199519238.43483483083.9811217215.053.5678.534.30308924795.5940160223

13944131088.23608692127.5902731197

canada

Consumption per capCig. PriceCPIofficial exchange ratereal price in canada $

19895.83237201282.91951.1843.063.624913433

19905.75430204813.281001.1673.283.8314736826

19914.95235682694.46105.6151961.1464.234.8443341207

19924.29264059795.39107.2055971.2095.036.0753445396

19933.71581317016.26109.1797031.295.747.3997332194

19945.50361701722.95109.3820041.3662.703.6821559973

19955.59401602233.98111.7536011.3723.564.8862948006

Figure 7.1.b

00

00

00

00

00

00

00

&A

Page &P

Real Income

Real Price

Real GDP/capita USD

Real Price/pack USD

Trends in real GDP/capita and price of cigarette/pack in Canada, 1989-1995

Table

00

00

00

00

00

00

00

&A

Page &P

Real Price

Consumption

Real price per pack (US$)

Annual cigarette consumption per capita (in packs)

Tax reduced in an attempt to counter smugglingIV

CigaretteTaxesTotalPrice80% of tax on80% tax onBasic Data on: GDP, GDP deflator, official exchange rate, PPP adjustment factor, and population.

Prices US $Per PackPopulationw/o taxw/o tax pricecurrent priceLast updated on:

1989-1997US $('000)CigarettesTaxesUS $0.80(incl. Tax)3/19/99 12:09

NameIncome1996New PriceNew PricePPP

Code0.80Country1996

HIAustralia4.853.15HIAustralia1805353493390501.391.445.33Albania

HIAustria2.962.16HIAustria810621481102031.482.504.77Argentina1.154

HIBahamas, The2.651.26HIBahamas, The2847102912.664.50Armenia0.012

HIBarbados2.501.03HIBarbados2648796591.505.98Australia0.752

HIBelgium3.322.49HIBelgium-Luxembourg1057242077215670.833.497.16Austria0.073

HICanada3.982.04HICanada296801547431299841.941.509.38Bahamas, The

HIDenmark5.214.38HIDenmark523723495171510.832.188.08Bangladesh0.094

HIFinland4.493.28HIFinland512614845111331.211.305.21Barbados

HIFrance2.902.17HIFrance583331972651420310.721.706.09Belgium0.028

HIGermany3.382.43HIGermany819221556061135930.950.923.42Belize0.757

HIGreece1.901.39HIGreece1049017719132890.510.763.04Bolivia0.669

HIIreland1.691.27HIIreland3554777656760.421.063.94Brazil1.392

HIItaly2.191.60HIItaly57226139338836030.591.754.38Bulgaria0.022

HIJapan2.431.46HIJapan12535196144576870.970.551.38Cambodia

HIKorea, Rep.0.770.46HIKorea, Rep.45314135439975160.311.515.38Canada0.839

HINetherlands2.992.15HINetherlands1557572996496370.842.708.44Chile0.006

HINew Zealand4.693.19HINew Zealand360225240196871.502.7712.61China0.603

HINorway7.015.47HINorway4348640751891.540.502.65Colombia0.003

HIPortugal1.471.19HIPortugal980821922159870.280.004.02Costa Rica0.012

HISingapore2.241.63HISingapore3384466733600.000.702.48Czech Republic0.076

HISpain1.380.99HISpain396741815151252460.392.558.24Denmark0.118

HISweden4.583.16HISweden881924669128281.422.425.04Dominican Republic0.199

HISwitzerland2.801.45HISwitzerland722463582381.341.521.58Egypt, Arab Rep.0.737

HITaiwan, China0.880.03HITaiwan, China21,38788871693190.851.657.48El Salvador0.178

HIUnited Kingdom4.163.24HIUnited Kingdom58368113220339660.912.443.49Estonia0.130

HIUnited States1.940.58HIUnited States26944478139546971.360.160.52Ethiopia0.773

79.3453.6590114516850131133589

3.052.0667.62187126

LIAlbania0.290.20LIArmenia36387173580.090.180.35Fiji1.173

LIArmenia0.200.10LIBangladesh1200731023230700.100.110.15Finland0.170

LIBangladesh0.090.03LICambodia10273483970.060.070.08France0.160

LICambodia0.050.01LIChina1232083122172492830.040.110.18French Guiana

LIChina0.100.04LIHonduras581636643660.061.021.13French Polynesia

LIHonduras0.630.06LIIndia9445803495902621920.570.170.67Gabon0.003

LIIndia0.370.28LIMoldova444413332490.090.440.54Gambia, The

LIMoldova0.300.06LINepal22021180513210.240.040.15Gaza Strip

LINepal0.080.06LIPakistan13997339734290060.020.140.51Georgia0.002

LIPakistan0.280.21LISri Lanka181001896345250.081.441.89Germany0.491

LISri Lanka1.050.25LIVietnam75181750327010.800.110.18Ghana0.003

LIVietnam0.100.04LIZambia8275537916140.060.821.17Greece0.004

LIZambia0.650.20LIZimbabwe11439488439070.460.150.77Grenada0.557

LIZimbabwe0.430.34LIAlbania3401510214280.091.942.70Guadeloupe

4.611.86

0.330.1340.42

LMIBelize1.500.42LMIBelize21970431.080.220.58Guam

LMIBolivia0.320.20LMIBolivia7593455618980.120.631.08Guatemala0.443

LMIBulgaria0.600.25LMIBulgaria84685122300.350.060.11Guinea0.003

LMIColombia0.060.03LMIColombia3644426969202260.030.331.33Guinea-Bissau0.000

LMICosta Rica0.740.56LMICosta Rica350021352860.190.951.10Guyana0.021

LMIDominican Republic0.610.08LMIDominican Republic7961398022690.530.390.90Haiti0.200

LMIEgypt, Arab Rep.0.500.29LMIEgypt, Arab Rep.6327142392180160.220.691.21Honduras0.277

LMIEl Salvador0.670.28LMIEl Salvador5796310.390.000.00Hong Kong0.128

LMIIndonesia0.000.00LMIIndonesia20045374766314020.000.390.67Hungary0.010

LMIJamaica0.370.16LMIJamaica2491398623910.221.152.88Iceland0.012

LMIPanama1.600.96LMIPanama2677669670.640.410.45India0.120

LMIParaguay0.250.03LMIParaguay495710986940.230.150.40Indonesia0.001

LMIPhilippines0.220.14LMIPhilippines6928241712258610.080.411.08Iran, Islamic Rep.0.001

LMIThailand0.600.37LMIThailand5870330105126440.230.540.92Iraq

LMITurkey0.510.22LMITurkey61797439721990.300.060.13Ireland1.557

LMIVenezuela0.070.04LMIVenezuela2231130790215530.040.752.48Israel

8.634.00

0.540.2546.40

UMIArgentina1.380.97UMIArgentina3521936958277190.410.471.89Italy0.001

UMIBrazil1.050.79UMIBrazil161087141757992300.260.481.58Jamaica0.045

UMIChile0.880.62UMIChile14421470640.260.590.59Japan0.006

UMICzech Republic0.330.00UMICzech Republic10251666346640.330.351.17Jordan3.057

UMIEstonia0.650.46UMIEstonia14717633240.200.540.93Kazakhstan0.038

UMIHungary0.520.22UMIHungary10049686622910.300.821.23Kenya0.060

UMIMalaysia0.680.23UMIMalaysia205811296678210.460.451.13Kiribati

UMIMexico0.630.38UMIMexico9271846359181730.250.550.90Korea, Dem. Rep.

UMIPoland0.500.20UMIPoland386012431861070020.306.3511.34Korea, Rep.0.002

UMISeychelles6.302.77UMISlovak Rep.5341309810683.530.681.04Kuwait

UMISlovak Republic0.580.20UMISlovenia1924207813090.380.721.94Kyrgyz Republic0.421

UMISlovenia1.080.68UMISouth Africa4239356095186530.401.592.38Lao PDR0.003

UMISouth Africa1.320.44UMISt. Lucia144130660.880.801.62Latvia3.282

UMISt. Lucia0.900.46UMIUruguay3204352421150.440.791.98Lebanon0.001

UMIUruguay1.100.66UMISeychelles7413256700.440.0032.22Lesotho0.907

189.06Liberia

1.190.6050.59Libya

Lithuania0.529

Average price in US$Average tax in US$Tax as a percentage of priceLuxembourg0.025

High Income3.052.0667.62Macao

Upper Middle Income1.190.6051.00Macedonia, FYR

Lower Middle Income0.540.2546.40Madagascar0.001

Low Income0.330.1340.40Malawi0.209

5.11Malaysia0.898

HI0.5969846402Maldives0.240

UMI0.2328098438Mali0.005

LMI0.1056448031Malta

LI0.064560713Marshall Islands

Martinique

Mauritania0.030

Mauritius0.134

Average Cigarette Price, Tax and % of Tax Share Per Pack in Income Regions, 1993, 1997Mayotte

Mexico0.292

Micronesia, Fed. Sts.

Moldova0.764

Mongolia0.009

Montserrat

Morocco0.289

Mozambique0.001

Myanmar

Namibia0.597

Nepal0.096

Netherlands0.481

Netherlands Antilles

New Caledonia

New Zealand0.682

Nicaragua0.562

Niger0.009

Nigeria0.051

Norway0.101

Oman

Pakistan0.099

Panama2.338

Papua New Guinea1.969

Paraguay0.001

Peru0.735

Philippines0.112

Poland0.641

Portugal0.008

Puerto Rico

Qatar

Reunion

Romania0.001

Russian Federation0.000

Rwanda0.010

Samoa

Sao Tome & Principe

Saudi Arabia

Senegal0.005

Seychelles

Sierra Leone0.003

Singapore0.612

Slovak Republic0.069

Slovenia0.010

Solomon Islands0.683

Somalia

South Africa0.528

Spain0.008

Sri Lanka0.055

St. Kitts and Nevis0.477

St. Lucia0.520

St. Vincent & the Gren.0.651

Sudan

Suriname0.005

Swaziland0.690

Sweden0.103

Switzerland0.484

Syrian Arab Republic0.072

Taiwan0.052

Tajikistan0.017

Tanzania

Thailand0.088

Togo0.010

Tonga

Trinidad and Tobago0.264

Tunisia2.313

Turkey0.000

Turkmenistan0.001

Turks & Caicos Isl.

Uganda0.003

Ukraine1.423

United Arab Emirates

United Kingdom1.594

United States1.013

Uruguay0.173

Uzbekistan0.107

Vanuatu0.021

Venezuela0.007

Viet Nam0.000

Virgin Isles (UK)

Virgin Isles (US)

West Bank

West Bank/Gaza

Yemen, Rep.0.022

Yugoslavia, Fed. Rep.

Zambia0.002

Zimbabwe0.342

Counts:144

000

000

000

000

&A

Page &P

Average price in US$

Average tax in US$

Tax as a percentage of price

Countries by income

Average price or tax per pack (US$)

Tax as a percentage of price

Data for GDP is in new zloty currency.

GDP figures are in Tajk rubles.

GDP figures are in manats.

GDP figures are in millions of sums.

Non-price measures to reduce demandIncrease consumer information: dissemination of research findings, warning labels, counter-advertisingComprehensive ban on advertising and promotionRestriction on smoking in public and work places

Comprehensive advertising bans reduce cigarette consumption Consumption trends in countries with such bans vs. those with no bans(n=102 countries) Source: Saffer, background paper

Chart1

17151635

14701530

Comprehensive ban

No ban

Year

Cigarette consumption per capita

No Ban

Ban

Sheet1

19811991

Comprehensive ban17151470

No ban16351530

Sheet1

00

00

Comprehensive ban

No ban

Year

Cigarette consumption per capita

Ban

No Ban

Sheet2

Sheet3

Sheet4

Sheet5

Sheet6

Potential impact of a price increase of 10% and a package of non-price measures Source: Ranson and others, background paper

Region

Change in number of smokers (millions)

Change in number of deaths (millions)

Price increases

Non-price measures

Price increases

Non-price measures

Low/Middle Income

-36

-19

-9

-4

High Income

-4

-4

-1

-1

World

-40

-23

-10

-5

NRT and cessation therapiesNRTs double the effectiveness of cessation efforts and reduce individuals withdrawal costsGovernments may widen access to NRT and other cessation therapies by:Reducing regulationConducting more studies on cost-effectiveness (especially in low/middle income countries)Considering NRT subsidies for poorest smokers

Which interventions are ineffective at reducing consumption?

Most measures to reduce supplyProhibitionYouth access restrictionsCrop substitutionTrade restrictions Control of smuggling is the only exception and it is the key supply-side measure

What are the costs of tobacco control?Revenue loss: likely to have revenue gainsa 10% tax increase would raise revenue by 7%Job loss: temporary, minimal and gradualPossible smuggling: crack down on criminal activity, not lower taxes Cost to individuals, especially the poor: partially offset by lower consumption

As tobacco tax rises, revenue rises tooReal price and tobacco revenues in the U.K., 1971-1995Source: Townsend 1998

_984564994.doc

Price (in 1994 pound sterling)

Taxation revenue (in miilion of pound sterling)

PRICE

TAX REVENUE

3.00

2.80

2.60

2.40

2.20

2.00

1.80

1.60

1.40

Year

1995

1992

1989

1986

1983

1980

1977

1974

1971

9000

8500

8000

7500

7000

6500

6000

1995

Real Prices and Tobacco Taxation Revenue UK 1971-

Studies on the employment effects of dramatically reduced or eliminated tobacco consumptionSource:Buck and others, 1995; Irvine and Sims, 1997; McNicoll and Boyle 1992, van der Merwe and others, background paper; Warner and others 1996

Type of country

Name and year

Net change as % of economy in base year given

Net Exporters

US (1993)

0%

UK (1990)

+0.5%

Zimbabwe (1980)

-12.4%

Balanced Tobacco Economies

South Africa (1995)

+0.4%

Scotland (1989)

+0.3%

Net Importers

Bangladesh (1994)

+18.7%

How cost-effective are tobacco control measures?US dollars per DALY savedNote: 3% discount rate, costs for non-price measures and all benefits projected over 30 yearsSource: Ranson and others, background paper

Region

Price increases of 10%

Non-price measures with effectiveness of 5%

NRT (publicly provided) with 25% coverage

Low / middle income

4 to 17

68 to 272

276 to 297

High Income

161 to 645

1,347 to 5,388

746 to 1,160

SummaryTobacco deaths worldwide are large and growing, and have higher burdens in the poorSpecific market failures support government interventionDemand measures, chiefly tax increases, information, and regulation are most effective to reduce consumptionControl of smuggling is the major supply-side interventionTobacco control is cost-effective

Key recommendationsGovernments: adopt multi-pronged strategy, tailored to each countrycigarette tax increases: 2/3 to 4/5 of retail priceconsumer information, research, advertising and promotion bans, warning labels and restrictions on public smoking widen access to NRT and other cessation therapies International agencies: review policies, sponsor research, address cross-border issues and support the FCTC