Assessing the Effects of a Tobacco Tax Reform on the Industry Price-Setting Strategy

In July 2020, the Executive Power submitted Bill no. 3887-2020 as the first step towards a wide reform of the Brazilian tax system. It will replace the current PIS/COFINS (charged on turnover of companies) by the CBS (a tax on goods and services), which includes a special regime for cigarettes. The novelty is that the specific cigarette tax will be charged on the highest retail price per cigarette brand across the country. This research simulates three scenarios that differ according to the price-setting strategy of the tobacco industry in reaction to the proposed tax reform. In all simulations, the tax reform would result in considerably higher cigarette prices, lower cigarette consumption, higher tax collection, and an implicit minimum price that is far above the current official price floor. Furthermore, the price dispersion and cross-border shopping across states would be reduced because prices and tax burden per brand would tend to be the same across the country due to the dominant price-setting strategy in the cigarette industry.

Cigarette Prices and Smoking Behavior in Israel: Findings from a National Study of Adults (2002-2017)

Tobacco taxation and price policies are considered the most effective for lowering demand for tobacco products. While this statement is based on research from numerous countries, scant evidence exists on this topic for Israel. Accordingly, we assessed the association between cigarette prices and smoking prevalence and intensity from a national sample of adults in Israel (2002-2017). Data on smoking behavior were derived from the Israeli Knowledge Attitudes and Practices (KAP) survey, a repeated cross-sectional survey. Price information is from the Economist Intelligence Unit (EIU) since it was not collected in the KAP survey. We used the price of a pack of 20 cigarettes for Marlboro and the local brand. These two price variables were the primary independent variables, and we adjusted for inflation. The dependent variables were current smoking (yes/no) and smoking intensity, defined as the number of cigarettes smoked per week. Multivariable analysis was employed using a two-part model while adjusting for covariates. The first step of the model utilized logistic regression with current smoking as the dependent variable. The second step examining smoking intensity as the dependent variable, used OLS regression. Price elasticity was estimated as well. Analysis revealed that a one-unit increase (Israeli currency) in the price of local brand of cigarettes was related to 2.0% (OR = 0.98; 95%CI 0.98, 0.99) lower odds of being a current smoker, adjusting for covariates including household income. Moreover, a one unit increase in the price of the local brand of cigarettes was related to consuming 1.49 (95% CI -1.97, -1.00) fewer weekly cigarettes, controlling for household income and covariates. Similar results were found with the Marlboro cigarette prices. The total price elasticity of cigarette demand, given by the sum of price elasticities of smoking prevalence and intensity, showed that a 10.0% increase in the price is associated with a 4.6-9.2% lower cigarette consumption among Israeli adults. Thus, increasing cigarette prices will likely lead to a reduction in cigarette smoking thereby improving public health in Israel.

Effects of Prices on Youth Cigarette Smoking and Tobacco Use Initiation in Ghana and Nigeria

Background: Population growth in the African region is set to outpace the rate of decline in smoking prevalence, leading to a projected increase in the total number of smokers. As most tobacco users initiate during their adolescent years, tobacco prevention strategies targeting youth will be particularly important. Methods: This study estimated the impact of cigarette prices on youth cigarette smoking and tobacco use initiation in Ghana and Nigeria using the Global Youth Tobacco Survey data. First, we used cross-section data and logit models to estimate the effects of prices on youth cigarette smoking. Second, we created pseudo longitudinal data and used continuous-time hazard models to evaluate the impact of cigarette prices on tobacco use initiation. Results: We found that higher cigarette prices decreased both 30-day cigarette smoking and tobacco use onset significantly in both Ghana and Nigeria. Additionally, the price elasticity of cigarette smoking and tobacco use initiation ranged from -0.44 to -1.13, and -1.04 to -3.66, respectively. Conclusions: As one of the first studies on youth tobacco consumption in Sub-Saharan Africa, this study strongly suggests that policies that increase real cigarette prices can lower both cigarette smoking and tobacco use initiation among youth in Ghana and Nigeria.

The effect of price and tax policies on the decision to smoke among men in Kenya

AIMS

To assess the impact of cigarette prices on male smoking initiation and cessation in Kenya from 1960 to 2014.

DESIGN

Longitudinal study using individual level data from the 2014 Global Adult Tobacco Survey (GATS) and historical data on cigarette prices.

SETTING

Kenya.

PARTICIPANTS

A total of 2079 men, among whom 619 identified as ever-smokers.

MEASUREMENTS

Self-reported data on the years of smoking initiation and cessation, merged with historical data on cigarette prices. We employed several methodologies to estimate the effect of prices on smoking transitions, including a pooled linear model with propensity score matching (PSM).

RESULTS

Price increases were negatively associated with smoking initiation, with price elasticity of initiation ranging from -0.03 (-0.066 to -0.000) to -0.14 (-0.216 to -0.0563). The association was two to three times larger for younger male adults compared with the average. Price increases were correlated with increased cessation for younger males, with a price elasticity of 0.08 (0.027-0.141) and for low-income males with a price elasticity of 0.16 (-0.752 to 0.429).

CONCLUSIONS

Cigarette price increases in Kenya between 1960 and 2014 were negatively associated with males' smoking initiation and positively associated with younger and lower-income males' cessation.

New Evidence on the Price Effects of Cigarette Tax Competition

Multiple studies have shown that cigarette taxes are more than fully passed through to cigarette prices and that access to a nearby state with a lower cigarette tax also reduces local cigarette prices. We study two other sources of tax competition: nearby Native American reservations and online sales. Using quarterly data on local cigarette prices from 1976-2003, we show that the opening of a Native American casino within 25 miles of a city center is associated with a $0.016-$0.027 lower per-pack price, while a 50 percentage point increase in internet penetration is associated with a $0.22-$0.25 per-pack price reduction. These effects are not observed for other local prices for which there is no potential tax savings. Our results further our understanding of how tax competition affects local cigarette prices and provide context to studies linking Native American reservations and internet penetration to cigarette smuggling.

Tobacco Control Policies and Sudden Infant Death Syndrome in Developed Nations

This paper estimates the effects of higher cigarette prices and smoke-free policies on the prevalence of Sudden Infant Death Syndrome (SIDS). Using a panel of developed countries over a 20 year period, we find that higher cigarette prices are associated with reductions in the prevalence of SIDS. However, we find no evidence that smoke-free policies are associated with declines in SIDS.

The relation between cigarette price and hand-rolling tobacco consumption in the UK: an ecological study

OBJECTIVES

Cigarette price increases reduce smoking prevalence but as a tobacco control policy are undermined by the availability of lower cost alternatives such as hand-rolling tobacco. The aim of this descriptive study is to explore time trends in the price of manufactured cigarettes and hand-rolling tobacco, and in the numbers of people who smoke these products, over recent years in the UK.

SETTINGS AND PARTICIPANTS

UK.

OUTCOME MEASURES

Trends in the most popular price category (MPPC) data for cigarettes and hand-rolling tobacco from 1983 to 2012 adjusted for inflation using the Retail Price Index, and trends in smoking prevalence and the proportion of smokers using hand-rolling tobacco from 1974 to 2010.

RESULTS

After adjustment for inflation, there was an increase in prices of manufactured cigarettes and hand-rolling tobacco between 1983 and 2012. Between 1974 and 2010, the prevalence of smoking fell from 45% to 20%, and the estimated total number of smokers from 25.3 to 12.4 million. However the number of people smoking hand-rolling tobacco increased from 1.4 to 3.2 million, and MPPC cigarette price was strongly correlated with number of people smoking hand-rolling tobacco.

CONCLUSIONS

Although the ecological study design precludes conclusions on causality, the association between increases in manufactured cigarette price and the number of people smoking hand-rolling tobacco suggests that the lower cost of smoking hand-rolling tobacco encourages downtrading when cigarette prices rise. The magnitude of this association indicates that the lower cost of hand-rolling tobacco seriously undermines the use of price as a tobacco control measure.

Understanding tobacco industry pricing strategy and whether it undermines tobacco tax policy: the example of the UK cigarette market

AIMS

Tobacco tax increases are the most effective means of reducing tobacco use and inequalities in smoking, but effectiveness depends on transnational tobacco company (TTC) pricing strategies, specifically whether TTCs overshift tax increases (increase prices on top of the tax increase) or undershift the taxes (absorb the tax increases so they are not passed onto consumers), about which little is known.

DESIGN

Review of literature on brand segmentation. Analysis of 1999-2009 data to explore the extent to which tax increases are shifted to consumers, if this differs by brand segment and whether cigarette price indices accurately reflect cigarette prices.

SETTING

UK.

PARTICIPANTS

UK smokers.

MEASUREMENTS

Real cigarette prices, volumes and net-of-tax- revenue by price segment.

FINDINGS

TTCs categorise brands into four price segments: premium, economy, mid and 'ultra-low price' (ULP). TTCs have sold ULP brands since 2006; since then, their real price has remained virtually static and market share doubled. The price gap between premium and ULP brands is increasing because the industry differentially shifts tax increases between brand segments; while, on average, taxes are overshifted, taxes on ULP brands are not always fully passed onto consumers (being absorbed at the point each year when tobacco taxes increase). Price indices reflect the price of premium brands only and fail to detect these problems.

CONCLUSIONS

Industry-initiated cigarette price changes in the UK appear timed to accentuate the price gap between premium and ULP brands. Increasing the prices of more expensive cigarettes on top of tobacco tax increases should benefit public health, but the growing price gap enables smokers to downtrade to cheaper tobacco products and may explain smoking-related inequalities. Governments must monitor cigarette prices by price segment and consider industry pricing strategies in setting tobacco tax policies.

The heterogeneity of the cigarette price effect on body mass index

Previous studies estimate the average effect of cigarette price on body mass index (BMI), with recent research showing that their different methodologies all point to a negative effect after several years. This literature, however, ignores the possibility that the effect could vary throughout the BMI distribution or across socioeconomic and demographic groups due to differences in underlying obesity risks or preferences for health. We evaluate heterogeneity in the long-run impact of cigarette price on BMI by performing quantile regressions and stratifying the sample by race, education, age, and sex. Cigarette price has a highly heterogeneous negative effect that is more than three times as strong at high BMI levels--where weight loss is most beneficial for health--than at low levels. The effects are also strongest for blacks, college graduates, middle-aged adults, and women. We also assess the implications for disparities, conduct robustness checks, and evaluate potential mechanisms.

Impact of cigarette minimum price laws on the retail price of cigarettes in the USA

INTRODUCTION

Cigarette price increases prevent youth initiation, reduce cigarette consumption and increase the number of smokers who quit. Cigarette minimum price laws (MPLs), which typically require cigarette wholesalers and retailers to charge a minimum percentage mark-up for cigarette sales, have been identified as an intervention that can potentially increase cigarette prices. 24 states and the District of Columbia have cigarette MPLs.

METHODS

Using data extracted from SCANTRACK retail scanner data from the Nielsen company, average cigarette prices were calculated for designated market areas in states with and without MPLs in three retail channels: grocery stores, drug stores and convenience stores. Regression models were estimated using the average cigarette pack price in each designated market area and calendar quarter in 2009 as the outcome variable.

RESULTS

The average difference in cigarette pack prices are 46 cents in the grocery channel, 29 cents in the drug channel and 13 cents in the convenience channel, with prices being lower in states with MPLs for all three channels.

CONCLUSIONS

The findings that MPLs do not raise cigarette prices could be the result of a lack of compliance and enforcement by the state or could be attributed to the minimum state mark-up being lower than the free-market mark-up for cigarettes. Rather than require a minimum mark-up, which can be nullified by promotional incentives and discounts, states and countries could strengthen MPLs by setting a simple 'floor price' that is the true minimum price for all cigarettes or could prohibit discounts to consumers and retailers.

Changes in Youth Smoking, 1976-2002: A Time-Series Analysis

During the past several decades, smoking prevalence among youth has fluctuated in puzzling and unexpected ways. To help understand these changes, this study tests seven explanations: (a) compositional changes, (b) sample selection, (c) adult smoking, (d) social strain, (e) cigarette prices, (f) tobacco advertising, and (g) other drug use. Figures on smoking prevalence come from the Monitoring the Future (MTF) Surveys from 1976-2002, whereas figures on aggregate determinants for the same time period come from government publications. Graphs of the time-series trends to determine temporal correspondence and time-series regression models to test for statistical influence reveal two variables that have expected effects. Increases in cigarette prices reduce smoking, particularly in the most recent years, and higher marijuana initiation (or use) is associated with greater smoking during most of the time period. However, much of the change in youth smoking, particularly the most recent rise and fall, remains unexplained.