Madam, – Jim Power’s recent report on behalf of the Irish Cancer Society, ASH and the Irish Heart Foundation argued for a sharp increase in taxes on cigarettes and this has generated a great deal of comment, including some criticism by your columnist Noel Whelan (Opinion, March 14th).
The argument for such taxes is simple: cigarettes are price-responsive so a tax on them, by reducing demand, should lead to better health outcomes and generate some much-needed tax revenue. A win-win situation, then? Not necessarily, since advocates of the tax increase miss an essential point.
Leaving aside cross-Border shopping, a deeper problem is that while the number of cigarettes smoked may be responsive to price, so too is smokers’ behaviour. In particular there is good evidence that in response to increased excise taxes, smokers will smoke more intensively, thereby extracting more nicotine from cigarettes.
Evidence from epidemiology suggests that smokers can regulate the amount of nicotine extracted from a given cigarette by varying the number of puffs and the degree and length of inhalation. Smoking a cigarette more intensively, up to the filter, exposes the smoker to more dangerous chemicals. Moreover, not all cigarettes are the same and there is also good evidence that smokers respond to increased taxes by switching to brands with higher tar and nicotine yields.
This effect has been shown in an important study by Adda and Cornaglia in the American Economic Review (2006), perhaps the leading economics periodical. Any economist working in this field would know of this study. The authors find that, in response to tax increases, smokers fully compensate for consuming fewer cigarettes with increased smoking intensity and thereby keep nicotine levels constant.
While their estimates may be at the pessimistic end of the scale, the basic point is uncontroversial: it is not sufficient simply to look at the number of cigarettes smoked. If taxes cause individuals to stop smoking, this will reduce tax revenues, not increase them. In short, the prospects for such tax increases to lead to better health outcomes and more tax revenue are far from clear.
Policies for improving public health are important. Indeed, they are a matter of life or death. It is essential that they be based on the best science available. – Yours, etc,