Prices, taxes and revenues
Prices and taxes
"Sugar, rum, and tobacco, are commodities which are nowhere necessaries of life, [but] which are ... objects of almost universal consumption, and which are therefore extremely proper subjects of taxation." (Adam Smith - An Inquiry into the Nature and Causes of The Wealth of Nations)
Evidence from countries of all income levels shows that price increases on cigarettes are highly effective in reducing demand. Higher prices induce cessation and prevent initiation of tobacco use. They also reduce relapse among those who have quit and reduce consumption among continuing users. On average, a 10 percent price increase on a pack of cigarettes would be expected to reduce demand for cigarettes by about 4 percent in high-income countries and by about 8 percent in low- and middle-income countries, where lower incomes tend to make people more sensitive to price changes. Children and adolescents are more sensitive to price increases than adults, allowing price interventions to have a significant impact on this age group.
- Trends and Affordability of Cigarette Prices: Ample Room for Tax Increases and Related Health Gains
- The World Bank Report - Raising Cigarette Taxes
Tobacco companies involved price fixing (The Economist)
It is often claimed that higher tax rates will reduce government revenues. However, empirical evidence shows that raising tobacco taxes provides greater tobacco tax revenues. Due to the addictive nature of tobacco products, the proportionate reduction in demand does not match the proportionate size of the tax increase.