The economics of cigarette taxation essay

Rather than attributing smoking to irrational choices, economists try to find ways that tobacco use by individuals is consistent with such behaviors as a tendency for risk taking, lower awareness of the harm from tobacco use, 10 and lower investments made in future career prospects.

Exponential Discounting in the Traditional Approach Time preference—the principle that individuals value the present more than the future—is fundamental to economic analyses of decisions involving any time horizon, including health-related decisions. Further, higher tobacco taxes can be regressive if poorer groups bear a disproportionately larger burden because of reduced overall ability to purchase and consume other goods.

Fall in the proportion of people who smoke in Great Britain. People are addicted and there are no close substitutes. You could argue that smokers already pay the social cost of smoking given the high level of current tax.

Should taxes on cigarettes be increased?

Like conventional economic approaches, behavioral economics holds that tobacco use reflects interactions of supply and demand factors. Should taxes on cigarettes be increased?

As with any other purchase decision, smoking 20 cigarettes makes economic sense if benefits experienced are at least as high as costs incurred.

Therefore the best argument for increasing taxes is the normative judgement that smoking is bad for people and the government should intervene to reduce demand. Taxes can serve as a self-control device to help reduce tobacco use and enable successful quit attempts. Behavioral economics instead suggests that some demand for tobacco reflects overconsumption attributable to The economics of cigarette taxation essay self-control.

The primary concept used to analyze decisions involving the time dimension is discounting, or the tendency to attach a lower value to the future than to the present.

A Behavioral Economics Perspective on Tobacco Taxation

This field uses psychological research on individual decision making to analyze market outcomes where some individuals display common cognitive and perceptual limitations and complications disregarded by more conventional economic models.

The factor by which harm or benefit at any future date is diminished is termed the discount rate. Abstract Economic studies of taxation typically estimate external costs of tobacco use to be low and refrain from recommending large tobacco taxes.

With the estimated discounted costs pack price and perceived harm being higher than the benefit, the smoker in this example would consume less than the whole pack. Cigarettes are a demerit goodtherefore, consumers may underestimate the costs of smoking — e.

A growing international consensus favors measures to reduce tobacco use in both developed and developing countries 12 despite the controversy such policies often engender.

This will enable the government to spend money on health care or on campaigns to encourage people to stop smoking. The main rationale for recommending higher taxes is that price increases can counter some of the harm to society that private markets ignore.

Such taxes are likely to be more equitable for poorer subgroups than traditional economic analysis suggests, which would strengthen the case for increased tobacco taxation globally.

The traditional approach models the discounting process as smooth, or free of sudden changes in preferences from one period to the next. Although current tax structures often redress some harm smokers cause others, they are not specifically designed to reduce the harm that smokers inflict on themselves when they are unable to reduce consumption despite an intent to do so.

Evaluate the economic case for and against the UK government further increasing the tax on tobacco in order to reduce smoking. The traditional and behavioral approaches differ in how this time preference is modeled. Tobacco taxation, which affects both public health and public finance, is especially contentious.

The conventional approach to modeling how a consumer collapses this future harm of 1 cent per day into the present is to apply exponential discounting smoothly over time. The exponential discounter column of Table 1 and the dotted curve in Figure 1 illustrate this point: Economists agree that smokers tend to place a higher value on current rewards from smoking than on future health.

Individuals might well recognize that tobacco is harmful but act rationally to the extent that rational economic behavior consists in responding to prices in consistent ways, including reducing consumption when prices increase. Evidence suggests a higher tax on tobacco have played a role in reducing demand.

A more recent and growing body of economic research suggests that this conventional analysis might be inadequate as applied to tobacco taxation. Alternatively, they could lead to lower tax rates, e. Economists typically agree that taxes are required when prices in a market understate the harm that individual decisions cause to society as a whole, but they also hold that taxes should not interfere with private choices that do not harm others.

Increasing tax will lead to a fall in demand, although this may only be a small effect because demand is price inelastic. Self-control problems in economic contexts are among the phenomena investigated by behavioral economics. The recognition that tobacco is addictive, that intent to quit is widespread, and that attempts to quit are difficult underlie most tobacco control policies, from cessation assistance to advertising restrictions.

But the issue of self-control has generally not been incorporated into analyses of optimal tobacco tax levels.

Valuing present consumption higher than future outcomes—a positive rate of time preference—is common to most economic contexts. Showing rise in tax rates on cigarettes.Cigarette Taxes and Consumption: An Economic and Policy Analysis Mary Benson Benson, Mary, "Cigarette Taxes and Consumption: An Economic and Policy Analysis" ().

methods has been the taxation of cigarette smoking at. Introduction The results of our analysis demonstrate that increase in cigarette tax would reduce the cigarette consumption or quit smoki Fair Use Policy; Help Centre we highly recommend that future longitudinal research on cigarette taxation be conducted in Malaysia.

Economics Essay Writing Service Free Essays More Economics. Economic studies of taxation typically estimate external costs of tobacco use to be low and refrain from recommending large tobacco taxes. Behavioral economics suggests that a rational decision-making process by individuals fully aware of tobacco's hazards might still lead to overconsumption through.

The libertarian is an advocate of freedom from regulations in such areas as illegal drugs, cigarette smoking, youth curfews, pornography, prostitution, gun use, electronic mail, and so on, where as the conservative may be in favor of limiting these freedoms.

/5(4). Economics Essay - Definition of Topic: Economics is the study of supply and demand. It defines the ways that human beings allocate resources and how resources are distributed amongst a market.

Tax revenue serves as the government income due to taxation. Therefore, as cigarette taxes increase so does the government income. Since.

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The economics of cigarette taxation essay
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