When Taxes Can Save Your Life

AN INCREASE IN EXCISE DUTIES ON TOBACCO WOULD HAVE A DOUBLY POSITIVE EFFECT: IT WOULD REDUCE THE NUMBER OF SMOKERS AND REPLENISH STATE COFFERS. BUT IT WOULD INEVITABLY HAVE A REGRESSIVE EFFECT

by Giovanni Fattore, Bocconi Department of Social and Political Sciences
Translated by Alex Foti

Several surveys of empirical studies show that the increasing the price of tobacco reduces its consumption because it discourages initiation to smoking, reduces the average consumption of cigarettes by those who continue smoking, and increases the number of smokers who manage to totally kick the habit.

Therefore, significantly increasing excise duties (fixed taxes per unit of product sold) on tobacco is an effective policy intervention which should receive serious consideration nationally and internationally, as the World Health Organization recommends. Available studies suggest that a 20% increase in excises (about €1 per pack of 20 cigarettes) would result in an 8% reduction in the quantity of tobacco consumed. Given the severely harmful impact of smoking on health, the increase in the excise tax would save thousands of lives a year, and at the same time bring savings in health care spending for cancer and cardiovascular diseases.

An excise tax of one euro per pack would also bring new revenues to the state of around €2 billion. Increasing taxes on smoking is therefore a public health measure that has a great impact and not only repays itself, but also generates additional resources for the community. The main downside of such a move is that excise duties are a form of regressive taxation: since they are calculated on consumption, they hit more than proportionally lower-income groups. In essence, the effect of the increase in the price of cigarettes would be positive for those who manage to quit smoking or smoke less, but would be a heavy economic burden for those who are unable to kick or otherwise limit the habit. All smokers would end up a bit poorer and, in particular, poor smokers would devote an even higher share of their income (possibly more than 20%) to financing their addiction to smoking.

To correct the regressiveness of the increase in cigarette duties, one could allocate the entire revenue collected to programs that foster a smoke-free society, by concretely helping smokers with services and therapies, thus avoiding using this "sin tax" to fund generic public spending. Stick and carrot: the state intervenes heavily to discourage smoking, but it does so not to raise cash and create further economic disparities, but to finance a major health campaign against a terrible vice which should disappear from our society.