Raising taxes to reduce smoking prevalence in the US: A simulation of the anticipated health and economic impacts

Summary 

Objective

To estimate health and economic outcomes of raising the excise taxes on cigarettes.

Methods

We use a dynamic computer simulation model to estimate health and economic impacts of raising taxes on cigarettes (up to 100% price increase) for the entire population of the USA over 20 years. We also perform sensitivity analysis on price elasticity.

Results

A 40% tax-induced cigarette price increase would reduce smoking prevalence from 21% in 2004 to 15.2% in 2025 with large gains in cumulative life years (7 million) and quality adjusted life years (13 million) over 20 years. Total tax revenue will increase by $365 billion in that span, and total smoking-related medical costs would drop by $317 billion, resulting in total savings of $682 billion. These benefits increase greatly with larger tax increases, and tax revenues continue to rise even as smoking prevalence falls.

Conclusions

Increasing taxes on cigarettes is a unique policy intervention that reduces smoking prevalence, generates additional tax revenue, and results in significant savings in medical care costs.

Keywords: Smoking, Tax, Simulation, QALYS, System dynamics, Health impacts, Economic impacts, Price elasticity