Higher prices and increases in taxes on cigarette and other tobacco products significantly reduce cigarette smoking and other tobacco use (Jha and Chaloupka, 1999; Jha and Chaloupka, 2000; The Task Force on Community Preventive Services, 2001; Gallet and List, 2003).
One of the most fundamental laws of economics is that of the downward sloping demand curve, stating that as the price of a product rises, the quantity consumed of that product falls. Well over one hundred studies using data from the United States and other high income countries clearly demonstrate that this law applies to tobacco products. These reductions in tobacco consumption result from:
- increased cessation among current users
- less relapse among former users
- reduced initiation among youth, and
- less consumption among continuing users.
As described in the 2000 U.S. Surgeon Generals Report Reducing Tobacco Use (DHHS, 2000), the vast majority of studies on this issue find that a 10 percent increase in cigarette prices reduces overall cigarette consumption by between 3 and 5 percent. Given the addictive nature of smoking, the long-run impact of permanent price increases is larger, as addicted smokers adjust over time to the higher prices.
Experiences in many U.S. states, as well as several other countries, suggest that this is true over a wide range of price levels and price increases, implying that additional increases in cigarette taxes and prices would lead to further reductions in smoking, even in places where taxes and prices are relatively high. More limited research on the demand for smokeless tobacco and other tobacco products similarly concludes that higher taxes on and prices for these products reduce the use of these products.
Studies that have looked separately at the impact of price on prevalence and cigarette consumption among smokers find that about half of the drop in overall consumption results from reductions in the number of smokers, while the other half comes from reduced consumption among continuing smokers. While cigarette prices are affected by many factors, research indicates that increases in excise taxes result in comparable (and at times larger) increases in prices. The findings described in the Surgeon Generals Report are quite similar to those described in other comprehensive reviews, including the following publications:
- The World Banks Curbing the Epidemic: Governments and the Economics of Tobacco Control (Jha and Chaloupka, 1999)
- The World Bank and World Health Organizations Tobacco Control in Developing Countries (Jha and Chaloupka, 2000)
- The Task Force on Community Preventive Services Guide to Community Preventive Services: Tobacco Use Prevention and Control (2001), and Gallet and Lists (2003) meta-analysis of cigarette demand studies.