The Demand for Cigarettes in Ireland

Ireland has been among the leaders in implementing tax and price as part of a comprehensive  approach to tobacco control with the aim of reducing tobacco use and its consequences.  Cigarette excise taxes have been increased regularly over time and account for over 61 percent  of the retail price of the most popular brands and over 71 percent of the price exclusive of the value added tax; when value added taxes are included, total taxes rise to nearly four-fifths of  retail price. Ireland was the first country to implement a comprehensive smoke-free air policy, runs an effective mass-media campaign to inform the public about the harms from smoking, provides a variety of support for smoking cessation, and has among the most comprehensive limits on tobacco company marketing in the world. As a result, cigarette smoking prevalence has fallen by more than 20 percent over the past decade, while cigarette sales have fallen even more sharply (Euromonitor International, 2011).

A recent report from the Office of the Revenue Commissioners (ORC), however, suggests that Ireland may have gone past the ‘optimum point’ with respect to cigarette taxation, concluding that while further tax increases will lead to additional reductions in smoking, they will lead to sharp increases in tax avoidance and tax evasion, resulting in a decline in cigarette excise tax revenues (Reidy & Walsh, 2011). In this report, we provide a reanalysis of the data used in the ORC report. While we also estimate relatively large reductions in tax paid cigarette sales in response to tax and price increases, our estimates are well below those obtained in the ORC report. Our estimates suggest that the revenue impact of additional cigarette excise tax increases would be minimal, in contrast to the ORC estimates that imply large reductions in cigarette tax revenues in response to additional tax increases.

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August 2011

Authors:
Frank J. Chaloupka
John A. Tauras