A new study published online ahead of print in the American Journal of Public Health concludes that contrary to the popular wisdom in tobacco control, cigarette price increases are no longer an effective strategy to reduce adult smoking prevalence. In addition, the study concludes that cigarette price increases impose a disproportionate burden on poor smokers (see: Franks P, Jerant AF, Leigh P, et al. Cigarette prices, smoking, and the poor: implications of recent trends. Am J Public Health 2007; 97).
The study examined the relationship between cigarette price and smoking participation (not cigarette consumption) during the period 1984-2004. Overall, the study found that the increasing price of cigarettes over time was associated with a marked decline in smoking only for higher-income individuals, not for lower-income persons.
Prior to the Master Settlement Agreement (MSA), there was a strong association between increasing cigarette price and reduced smoking participation, with the price elasticity being significantly larger among lower-income (-0.45) versus higher-income (-0.22) persons. After the MSA, there was no significant association between cigarette price and smoking participation in either income group.
The authors conclude: "Despite cigarette price increases after the MSA, income-related smoking disparities have increased. Increasing cigarette prices may no longer be an effective policy tool and may impose a disproportionate burden on poor smokers."
The Rest of the Story
This is an important study because it challenges the popular wisdom in tobacco control that increasing cigarette excise taxes is an effective strategy to promote smoking cessation. That assumption is a key one that is being used by anti-smoking groups to support state and federal cigarette tax increases -- in particular, the proposed 61 cents per pack increase in the federal cigarette excise tax to provide revenues for the expansion of the State Children's Health Insurance Program (SCHIP).
For example, the Campaign for Tobacco-Free Kids has estimated that a 61 cents per pack tax increase will result in 171,000 adult smokers quitting. This estimate is based on a price elasticity of -0.2 for smoking participation among adults.
While the Campaign for Tobacco-Free Kids' assumption is supported by this new study using data for prior to the MSA, it is not supported by the post-MSA data. The post-MSA data suggest that smoking participation is no longer price sensitive, which would render the Campaign's estimate invalid.
It is important to note that according to these authors, the prevailing wisdom that there is a significantly negative price elasticity for smoking participation is based on data that were obtained prior to the MSA. The authors report that their study is only the second to use post-MSA data and that their results are in concordance with the one prior study that examined the more recent data (see: Colman G, Remler DK. Vertical equity consequences of very high cigarette tax increases: if the poor are the ones smoking, how could cigarette tax increases be progressive? Cambridge, MA: National Bureau of Economic Research; 2004. NBER Working Paper 10906).
The prior study concluded as follows: "We find that the price elasticity of smoking participation is -.14 for the lowest income tercile, -.05 for the middle income, and -.21 for the high income. We find that the price sensitivity of conditional consumption, cigarettes smoked by smokers, shows no robust pattern with income and is frequently insignificant. Thus, our results challenge the conventional view that price sensitivity falls monotonically with income. Our predictions of the equity consequences of tax increases show that using all traditional measures of progressivity, whether based on tax expenditures or welfare, cigarette tax increases are not close to progressive."
There are two important limitations to this study. First, it pertains only to smoking participation, not to cigarette consumption. Thus, it is still possible that smokers cut down on the amount they smoke in response to price increases.
Second, the study pertains only to adult smoking, not to youths.
In light of these limitations, I think there are two important implications of this research.
First, the research suggests that cigarette tax increases may no longer be effective in stimulating adult smoking cessation. It is possible that previous tax increases have "skimmed off" the less addicted smokers who were more motivated to quit smoking and thus left a population of smokers which is more addicted and less interested in quitting -- and thus much less price sensitive.
Second, the research suggests that cigarette tax increases are now increasing, not decreasing, income-related disparities in smoking prevalence. Combined with the Colman and Remler study, this new paper provides evidence that cigarette tax increases now do impose a disproportionate economic burden on the poor.
These are important considerations in light of the proposed use of an increased federal cigarette tax to fund an expansion of the SCHIP program. They add to the strength of my argument against this approach.