What is the True Burden? Estimating Smoking's Economic Costs
In 2017, Tobacconomics began partnering with think tanks in low- and middle-income countries to build a local evidence base on the economics of tobacco control. The findings produced under the Think Tanks Project relate to current policy discussions, as outlined by our six core competencies (presented as questions below).
This blog is part of a larger series, where we delve into research by core competency and region. In this blog, we will be presenting findings from two of the regions where we work (Asia and Southeastern Europe) relating to the fourth research core competency. To address the question presented under Research Core Competency 4, our think tank partners quantified the economic costs of tobacco consumption. They also examined how tobacco taxation can be used as an effective strategy to reduce these harms.
|#||Research Core Competency Questions|
|1||How do consumers of tobacco respond to tobacco taxes, and how would consumers respond to tax increases and other structural reforms to fiscal policies?|
|2||How would a given fiscal policy affect the price of tobacco products, and how would this change in price affect government revenues, consumption, and health outcomes?|
|3||How would the fiscal policy affect the poor?|
|4||What are the health and economic costs of a given unhealthy behavior and how can the fiscal policy address these costs?|
|5||How would the fiscal policy affect employment and economic growth?|
|6||To what extent is the fiscal policy related to illicit trade of tobacco products?|
Smoking incurs a tremendous cost on governments and societies both directly and indirectly. As outlined in a Tobacconomics technical note, direct costs include the economic costs of treating tobacco-related illness, such as lung cancer, heart disease, or COPD. These typically represent a significant share of the country’s overall health expenditure. Researchers also calculate indirect morbidity and mortality costs. Indirect morbidity costs include any loss of productivity due to tobacco-related illness. Indirect mortality costs, on the other hand, estimate the value of the lives lost prematurely due to tobacco use. Added together, these costs demonstrate the economic burden of tobacco use on countries.
In Indonesia, our think tank partner CISDI, examined the burden of tobacco use on the economy. The researchers estimate that the total economic cost ranges from IDR 184.36 to 410.76 trillion, or between 1.16% and 2.59% of GDP. The direct health care costs of tobacco use represent between 0.1% and 0.2% of GDP, or between IDR 17.9 and 27.7 trillion, respectively in 2019. The amount of tobacco tax revenue allocated for the health sector is insufficient to cover these costs. The researchers conclude that tobacco use imposes significant economic harm, and the costs to the public health system are unsustainable. Significantly increasing tobacco excise taxes and simplifying the excise tax tiers would reduce tobacco consumption and raise additional tax revenue, which can be earmarked for the health care expenditures.
Our partner in Pakistan, PIDE, calculated the total economic cost, overall, and specifically for three smoking-attributable diseases: cancer, cardiovascular diseases, and respiratory diseases. In 2019, the researchers estimate that the total cost of smoking is PKR 615.07 billion (or 1.6% of the GDP), which includes PKR 183.71 billion in direct costs (or 8.3% of total health spending) as well as PKR 133.04 billion in indirect morbidity costs and PKR 298.32 billion in indirect mortality costs. The majority of these costs are incurred by rural residents, males, and those between the ages of 35 and 64 in Pakistan. More than 70% of the total economic burden comes from cancer, cardiovascular disease, and respiratory diseases. On their own, these three diseases result in a total economic cost of PKR 437.76 billion, or 1.15% of the GDP. In comparison, the tax revenue collected from the tobacco industry in the same year only amounted to one-fifth of the costs, or PKR 120 billion. This disconnect suggests that policy makers should raise tobacco taxes and simplify the tiered tax structure to effectively reduce consumption and raise additional revenue.
UBL in Bosnia and Herzegovina estimated the total economic burden of smoking. They find that smoking resulted in a cost between BAM 718.74 and 973.68 million in 2019. On average, this is 2.36% of the country’s GDP. This estimate includes between BAM 557.30 million and BAM 765.99 million in direct costs, which is between 25.57% and 35.14% of the country’s total health care spending. In addition, the indirect morbidity cost is between BAM 50.59 million and KM 66.67 million, while the indirect mortality cost is between BAM 110.85 million and KM 141.01 million. The researchers recommend that policy makers implement regular tobacco excise tax increases to reduce consumption, and dedicate the additional revenue collected to fund mass media programs to educate and assist in smoking cessation.
As low- and middle-income countries continue to navigate budget constraints and other economic burdens, the high cost of tobacco use only further threatens their economic stability. Effective tobacco taxation is an under-utilized strategy among governments to respond to such costs. Increasing tobacco prices by significantly raising tobacco taxes would reduce consumption, while raising additional tax revenue. The new revenue can be directed towards the health sector, mass media educational campaigns, or cessation programs.
In our next blog, we will be focusing on the fifth research core competency and exploring the macroeconomic impacts of tobacco taxation!
*Graph sources: NCI WHO (2016); Hoang Anh et al., (2016); CISDI (2022); PIDE (2021); UBL (2022)