1
Curbing the Epidemic Governments and the Economics of Tobacco
Control
Curbing the Epidemic Governments and the Economics of Tobacco
Control
Global Evidence and Indonesia
By Ayda A. Yurekli, Ph.D
Economics of Tobacco Control Seminar in Jakarta, Indonesia November 2000
Why did the World Bank produce this report?
Economic arguments for, or against, tobacco control are unclear and often debated
• Government Revenues from Tobacco Taxes
• Jobs in Agriculture, Manufacture etc.
• Possible smuggling
• Cost to individuals, especially the poor
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Importance of Tobacco to Indonesian Economy in 1997
• Produced 4% of global production
• 0.45 % of all export earnings,
• 2% of global tobacco export
• 10 million employment related to tobacco
– 172,000 Manufacturing tobacco employment,
including 120,000 hand-made kreteks producers
• Government revenue Rp.10.3 trillion in 2000
4
Unless current smokers quit, smoking deaths will rise dramatically over the next
50 years
Unless current smokers quit, smoking deaths will rise dramatically over the next
50 years
0
340
520
70
500
220
190
0
100
200
300
400
500
1950 2000 2025 2050
Year
Toba
cco
deat
hs (m
illio
n)
Baseline
If proportion ofyoung adultstaking up smokinghalves by 2020
If adultconsumptionhalves by 2020
Source: Peto and others, 1994; Peto, personal communication.
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Why should governmentsintervene?
Large and growing number of deaths fromsmoking
Why should governmentsintervene?
Large and growing number of deaths fromsmoking
World: Annual Tobacco deaths (in millions)
Source: Peto, Lopez, and others 1997; WDR 1993
2000 2030Developed 2 ~3Developing ~2 ~7World Total 4 ~10
u 1 in 2 of long-term smokers killed by their addictionu 1/2 of deaths in middle age (35-69)
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Figure 1: Indonesia Cigarette Consumption 1960-1999
0
50
100
150
200
250
19
60
1964
1968
1972
1976
1980
1984
1988
1992
1996
Bil
lio
n p
iece
s
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Higher Increase in Cigarette Consumption
Volume Billion 1990 1997% change90-97 2000
% change97-00
China 1,550 1,652 7% 1,656 0.24%US 525 507 -3% 446 -12.0%Japan 322 328.1 2% 332.3 1.3%Indonesia 145.7 202 39% 228.6 13.2%Russia 245.8 230.1 -6% 287 24.7%Germany 127.7 143.8 13% 145 0.83%Brazil 164.1 110.3 -33% 104 -5.7%South Korea 95.7 104.3 9% 95.5 -8.4%India 77.9 102.8 32% 94.7 -7.9%Turkey 70.3 100 42.2 118 18%
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Which interventions are effective?Measures to reduce demand
• Higher cigarette taxes
• Non-price measures: consumer information, research, cigarette advertising and promotion bans, warning labels and restrictions on public smoking
• Increased access to nicotine replacement (NRT) and other cessation therapies
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Taxation is the most effective
measure • Higher taxes induce quitting and prevent
starting
• A 10% price increase reduces demand by:– 4% in high-income countries– 8% in low or middle-income countries
• Young people and the poor are the most price responsive
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Figure 8: Cigarette Consumption, Real Price and Income Per Capita in Indonesia, 1966-1995
0.51.01.52.02.53.03.54.04.55.0
19
66
19
68
19
70
19
72
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
1992
1994
log
Pri
ce a
nd
Con
sum
ptio
n
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Rea
l GN
P/c
apit
a
Consumption ln Real Kreteks Price/10 Real GNP/pc
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What is the “right” level of tax?
• Complex question– Depends on various factors, degree to
which society wishes to protect children, revenue considerations, etc.
• Useful yardstick: where comprehensive programs used, tax is at least 2/3 to 4/5 of retail price.
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Cigarette tax levels are lower in low or middle-income countries
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
High Income Upper MiddleIncome
Lower MiddleIncome
Low Income
Countries by income
Ave
rage
pric
e or
tax
per p
ack
(US$
)
0
10
20
30
40
50
60
70
80
Tax
as a
per
cent
age
of p
rice
Average price in US$Average tax in US$Tax as a percentage of price
Source: Authors’ calculations
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Tax share in average retail price of cigarettes varies among countries
Tobacco tax share in average retail price of pack of cigarettes in South East and East Asia
Countries
2030 30 33 36 38
60 60 62 63
0
20
40
60
80
Source: World Bank data
% t
ax
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The Share of Cigarette Excise Tax Revenues in Total and Excise Tax Revenues in Indonesia
1992-1996
4.1 4.3 4.2 4.2 4.2
8795 93 94 91
0
20
40
60
80
100
120
1992 1993 1994 1995 1996
% s
har
e
% of total revenues % of excise revenues
Real Cigarette Excise Tax Revenue and Its Rate of Increase from the Previous Year, Indonesia, 1993-
2000
CPI, 1995=100Assuming cpi99=cpi00
11%5.9% 4.4%
25% 4% 3%
0
1000
2000
3000
4000
5000
6000
1993 1994 1995 1996 1998 1999 2000
Bil
lio
n R
ub
iah
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As cigarette tax rises, revenues increase too
Tax per pack and cigarette tax revenues inNorway, 1990-1998
Tax per pack and cigarette tax revenues inNorway, 1990-1998
2000
2500
3000
3500
4000
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
Cig
are
tte
ta
x r
ev
en
ue
in
loc
al
cu
rre
nc
y (
mil
lio
ns
)
15
20
25
30
35
Ta
x p
er
pa
ck
in
lo
ca
l
cu
rre
nc
y
Cigarette tax revenues Tax per pack
Source: World bank 1999
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Tobacco smuggling tends to rise in line with the degree of corruption
Smuggling as a function of transparency index
Brazil
Pakistan
Cambodia
Indonesia
Sweden
Austria
y = - 0.02x + 0.2174
R2 = 0.2723
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0 2 4 6 8 10
Transparency index for country
Sm
ug
glin
g a
s a
sh
are
of
co
ns
um
pti
on
(%
)
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Canadian Government reduced tobacco tax rates dramatically in
February 1993Domestic Sale of Cigarettes and Fine-Cut Equivalents And
Domestic Tobacco Tax Revenues Canada 1981-1993
30
35
40
45
50
55
60
65
70
75
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
Cigarettes Billion
$2
$4
$6
$8
source:the smuggling of tobacco products: Lessons from Canada
Tax revenue $ billion
Sale of cigarettes
total tax revenue
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Trend in Cigarette Tax Revenues and Tax Rates in Sweden 1970-1998
0
1000
2000
3000
4000
5000
6000
7000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Mil
lio
n S
KE
(lo
cal
cu
rren
cy)
0
5
10
15
20
25
Tax/p
ack S
KE
(lo
cal
cu
rren
cy)
TaxesMillion SKE Taxes per pack
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Sweden decreased cigarette taxes (17%) due to fear of smuggling in 1998
Cigarette Tax Revenue and Consumption in Sweden, 1970-1998
0
1000
2000
3000
4000
5000
6000
7000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
Mil
lio
n S
KE
0
10
20
30
40
50
60
70
80
pack/c
ap
ita
TaxesMillion SKE cigarette/pack
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Summary• Tobacco deaths worldwide are large and growing, and
have higher burdens in the poor
• Specific market failures support government intervention
• Demand measures, chiefly tax increases, information, and regulation are most effective to reduce consumption
• Control of smuggling is the major supply-side intervention
• Tobacco control is cost-effective