How do you get people to quit smoking?
Warner: What we know is that if you increase the price by 10 percent you will decrease total cigarette consumption by 3 to 4 percent.
Dubner: Now, you may think, well of course Warner would talk about price theory – he’s an economist! But even a layperson can look at the data and see the relationship between cigarette prices and smoking. The economist Frank Chaloupka has calculated the inflation-adjusted price spike of cigarettes over the past few decades, and where that spike comes from. Overall, he found that a pack of cigarettes costs more than twice as much today as it did in 1990. Some of that increase comes from the manufacturers – especially since the late 1990’s, that’s when cigarette companies began passing along the costs from the Master Settlement Agreement. That was the deal between the big tobacco companies and 46 state attorneys general, which required the companies to pay out billions of dollars for, essentially, producing a dangerous product. By passing along some of that settlement cost to smokers, the companies added about 50 cents a pack. But a variety of taxes also made cigarettes much more expensive. Between 1990 and 2009, Chaloupka found the federal excise tax on cigarettes rose from 16 cents to more than $1 per pack. And state taxes, on average, more than quadrupled. Now, keep in mind that’s on average. There’s huge variance across states. Missouri adds only 17 cents a pack; Rhode Island adds a state tax of $3.46 per pack! On top of of all that, some cities add their own taxes. In 2002, for instance, New York City raised its excise tax from 8 cents a pack to $1.50. So, today, a pack of cigarettes in New York City costs, on average, more than $11. It is probably not coincidental, therefore, that New York State has one of the lowest smoking rates in the country. And who does an $11 price tag hit the hardest? The smokers who are most “price sensitive” – like teenagers. Indeed, between 2000 and 2012, the smoking rate among high schoolers in New York State fell by 56 percent. So if you want to fight smoking, you can see why economists, at least, agree that raising the price will work. Here’s Kip Viscusi, at Vanderbilt:
Viscusi: It’s a very powerful tool. You know, it doesn’t wear out. As you keep on the increasing price, it will keep on decreasing the demand for cigarettes.
Dubner: But just as different states in the U.S. have wildly different tax rates on cigarettes, different countries have wildly different cigarette taxes and prices, which are influenced by all sorts of factors. In China, for instance, the average cost is about $2 per pack of cigarettes; in Australia, it’s about $11, with talk of pushing that up to $20 a pack. And smoking rates around the world are extremely diverse. Among the lowest are the U.S. and Canada, Australia, much of South America, and most of Africa. Europe is generally in the middle, and Asia – well, if you look at the World Health Organization’s map of smoking rate by country, Asia is basically one big cloud of smoke. But even in the U.S., where as Kenneth Warner told us we’ve returned to the smoking rate of the 1930’s, that still translates into a lot of smokers.