Does Increasing Cigarette Prices Impact Consumption?

Blonde girl smoking a cigarette.

Ajay K. Singh
September 7, 2017

An interesting article by Nicholas Bakalar in the Aug 23, 2017 New York Times “Well” section caught my eye. It discusses a paper by Stephanie Mayne and colleagues accepted in Epidemiology that supports a relationship between the price of cigarettes and consumption. Quoting from the abstract:

$1 increase in price [of cigarettes] was associated with a 3% reduction in risk of current smoking (aRR: 0.97, 95% confidence interval [CI]: 0.93, 1.0), a 7% reduction in risk of heavy smoking (aRR: 0.93, CI: 0.87, 0.99), a 20% increase in risk of smoking cessation (aRR 1.2, CI: 0.99, 1.4), and a 35% reduction in the average number of cigarettes smoked per day by heavy baseline smokers (ratio of geometric means: 0.65, CI: 0.45%, 0.93%). We found no association between smoking bans and outcomes, and no evidence that price effects were modified by the presence of bans.

A CDC Grand Rounds article titled Current Opportunities in Tobacco Control, which cites earlier work, supports the conclusions reached by Mayne et al. A 10% increase in the price reduces cigarette consumption by about 4%. The data from the chart below is pretty impressive. The progressive rise in the sales price of a pack of cigarette has resulted in a steady decline in cigarette sales.

The CDC article makes the following point: “Increasing the price of cigarettes discourages initiation among youths, prompts quit attempts, and reduces average cigarette consumption among those who continue to smoke.”

However, since early 2000 the price of cigarettes has remained relatively steady, but sales have continued to fall, suggesting that factors beyond price are also important.  These factors include tobacco control programs run by states, media campaigns, health warnings on tobacco packaging, changing attitudes about smoking and the tobacco industry, and reduced youth tobacco initiation.

An interesting article looking at the economics in the UK of increasing cigarette taxes makes two points:

  1. Nearly two-thirds of the price of a pack of cigarettes goes to taxes.
  2. Because people are addicted to cigarettes, demand price is inelastic and sales are unlikely to fall much.

The article also reaches some harsh observations: “Smokers already pay a lot of tax …[and] they do not cost the government much because they die early and save pension and health care spending. Higher taxes will increase inequality because the poor will pay a higher percentage of tax than the rich who are more likely to have given up. Higher taxes will encourage people to smuggle illegal cigarettes and avoid paying the tax.”

In the US, there is tremendous variability in the price of a pack of cigarettes. In New York State, the price currently is around $10.50 (and there is a proposal to raise it to $13 per pack). In contrast, price elsewhere is about half this amount (According to the website Fairreporters.net which lists the prices of cigarettes by state, $5.40 per pack in Kentucky and between $6 to $8 per pack in other states).

In summary, the jury is out on precisely how elastic demand is based on price, but it is a fair conclusion from published data that price does impact sales. Further, there seems to be ample room among many states in the US to increase cigarette taxes and, therefore, price.

But, at least one thing is indisputable: the benefits of not smoking.

Ajay Singh, MBBS, FRCP headshotDr. Ajay K. Singh is the Senior Associate Dean for Global and Continuing Education and Director, Master in Medical Sciences in Clinical Investigation (MMSCI) Program at Harvard Medical School. He is also Director, Continuing Medical Education, Department of Medicine and Renal Division at Brigham and Women’s Hospital in Boston.

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