Death and Taxes Economics of Tobacco Control

• Author: Prabhat Jha, Joy de Beyer, and Peter S. Heller
• Position: He is on special assignment to the World Health Organization's Economic Advisory Service in the Evidence and Information for Policy Cluster/Economist in the Health, Nutrition, Population Sector of the World Bank/Deputy Director of the IMF's Fiscal Affairs Department

Contrary to long-standing beliefs, tobacco-control policies can lead to huge health benefits without harming economies.

About 1.1 billion people worldwide smoke, and, with current trends, the number is expected to rise to more than 1.6 billion by 2025. In high-income countries, the number of smokers has, overall, been declining for decades, although it continues to rise in some population groups. In low- and middle-income countries, by contrast, cigarette consumption has been increasing.

Few people now dispute that cigarette smoking is damaging human health on a global scale. Smoking-related diseases are already responsible for 1 in 10 adult deaths worldwide. By 2030, perhaps sooner, the ratio will be 1 in 6, or 10 million deaths a year, making smoking the largest single cause of death. Until recently, this epidemic of chronic disease and premature death affected mainly the populations of rich countries, but it is rapidly shifting to the developing world. By 2020, 7 of every 10 people who die from smoking-related diseases will be from low- and middle-income countries.

Despite these trends, many governments have avoided taking action to control smoking because of concern about potential economic harm. For example, some policymakers fear that reduced sales of cigarettes would mean the permanent loss of thousands of jobs, particularly in agriculture, and that higher tobacco taxes would result in both lower government revenues and massive cigarette smuggling. Recent research allays these fears.

Health effects of smoking

Smoking has two major health consequences. First, the smoker rapidly becomes addicted to nicotine, whose addictive properties, although well documented, are often underestimated. Second, smoking ultimately causes disabling and fatal diseases, including cancers of the lung and other organs, ischemic heart disease and other circulatory diseases, and respiratory diseases such as emphysema. In regions where tuberculosis is prevalent, smokers also face a greater risk than nonsmokers of dying from this disease. Half of all long-term smokers will eventually die as a result of smoking; of these, half will die during productive middle age. Because the poor are more likely to smoke than the rich, their risk of smoking-related disease and premature death is also greater. In high- and middle-income countries, men in the lowest socioeconomic groups are up to twice as likely to die in middle age as men in the highest socioeconomic groups, and smoking accounts for half of this additional risk. Finally, smoking also affects the health of nonsmokers, such as babies born to mothers who smoke.

Risks and costs of smoking

Modern economic theory holds that consumers are usually the best judges of how to spend their money on goods and services. When consumers bear all the costs of their actions and know all the risks, society's resources are, in theory, allocated as efficiently as possible. Does this theory apply to smoking? Smokers clearly perceive benefits from smoking, such as the pleasure it provides or the avoidance of withdrawal pains, and weigh these against the private costs of their choice. Defined this way, the perceived benefits outweigh the perceived costs; otherwise, smokers would not pay to smoke. However, the choice to smoke appears to differ from the choice to buy other consumer goods in three important ways.

First, there is evidence that many smokers, particularly in low- and middle-income countries, are not fully aware of the high risks of disease and premature death that their choice entails. In China in 1996, for example, 61 percent of smokers questioned thought that tobacco did them little or no harm. In high-income countries, smokers tend to minimize the personal relevance of...