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Brief report
The recent and projected public health and economic benefits of cigarette taxation in Greece
  1. Hillel R Alpert1,
  2. Constantine I Vardavas1,2,
  3. Frank J Chaloupka3,
  4. Athanassios Vozikis4,
  5. Konstantinos Athanasakis5,
  6. Ioannis Kyriopoulos5,
  7. Monique Bertic1,
  8. Panagiotis K Behrakis1,2,6,
  9. Gregory N Connolly1
  1. 1Department of Social and Behavioral Sciences, Center for Global Tobacco Control, Harvard School of Public Health, Boston, Massachusetts, USA
  2. 2Hellenic Cancer Society, Smoking and Lung Cancer Research Center, Athens, Greece
  3. 3Department of Economics and Health Policy Center, University of Illinois at Chicago, Chicago, Illinois, USA
  4. 4Department of Economics, University of Piraeus, Athens, Greece
  5. 5National School of Public Health, Athens, Greece
  6. 6Foundation for Biomedical Research of the Academy of Athens, Athens, Greece
  1. Correspondence to Dr Hillel R Alpert, Department of Social and Behavioral Sciences, Center for Global Tobacco Control, Harvard School of Public Health, Boston, MA 02115, USA; halpert{at}hsph.harvard.edu

Abstract

Objectives Greece is in an economic crisis compounded by the costs caused by smoking. The present investigation estimates the economic and public health benefits ensuing from the recent cigarette excise tax increase in 2011 and projects the potential benefits from an additional €2.00 per pack cigarette tax increase.

Methods The effects of the recent cigarette excise tax increase were calculated on outcome measures: total price per pack, including specific excise, ad valorem tax, and value-added tax consumption; tax revenue; and per capita consumption of cigarettes. Additionally, smoking-attributable mortality, years of potential life lost, and productivity losses were estimated. Projected effects of an additional €2.00 per pack tax increase on consumption and tax revenue were also assessed.

Results The cigarette excise tax increase in 2011 created €558 million in new tax revenue. Cigarette consumption reached a recent low of 24.9 billion sticks sold or 2197 sticks per person in 2011, indicating a 16% decrease in per capita cigarette consumption from the previous year. An additional €2.00 per pack increase in Greek cigarette taxes is projected to result in reduced cigarette sales by an additional 20% and lead to an increase in total cigarette tax revenues by nearly €1.2 billion and the prevention of 192 000 premature deaths.

Conclusions Nations such as Greece, should employ taxation as a crucial measure to promote public health and economic development in such dire times. International economic organisations should aggressively pursue programmes and policies that champion the economic benefits of tobacco taxation.

  • Economics
  • Prevention
  • Public policy
  • Taxation

https://doi.org/10.1136/tobaccocontrol-2012-050857

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    Introduction

    Greece is currently in a dire economic crisis, experiencing massive public health sector cutbacks and austerity measures.1 This situation may be compounded by the costs associated with smoking. The nation consumes 2197 cigarettes per capita per year, the highest consumption in the European Union2 ,3 and spends approximately €3.2 billion annually for the treatment of smoking related diseases.4

    To curb this epidemic, Greece launched a major effort in 2009 to reduce smoking with clean indoor air laws, school education programmes, advertising restrictions, mass media campaigns and increases in cigarette taxes.4 Among these interventions, a significant focus was placed on the role of a tobacco tax, given its potential effect on smoking prevalence. Research has shown that, in high-income countries, every 10% increase in cigarette prices results in a 4.0% reduction in cigarette consumption.5 The limited available economic research regarding cigarette demand in Greece is consistent with the international evidence.6–8

    The present investigation aimed to estimate the economic and public health benefits of the 2011 cigarette excise tax increase and project the potential economic and public health benefits of an additional €2.00 per pack increase. This proposed tax increase, when earmarked towards healthcare and tobacco control, has been assessed by surveys to be supported by over 70% of the Greek population.9

    Data and methods

    Greek cigarette price and taxation data were obtained from the European Commission Excise duty tables.10 Cigarette taxes per pack in July of each year, including ad valorem, specific excise and value-added tax, and total cigarette tax revenues per year were obtained from the European Commission.10 The tax base was determined using the most popular price category (MPPC) prior to 2011 and the weighted average price of all cigarettes since 2011. Total annual cigarette volume sales and per capita cigarette consumption data for years 2001 through 2011 were obtained from the Euromonitor Passport Global Market Information Database.3 These data were used to calculate changes in consumption following the cigarette tax increase.

    The relationship among cigarette tax, price increases and cigarette demand is defined by price elasticity of demand. A range of estimates has been produced for the price elasticity of demand for cigarettes, with most of the estimates from the USA and other high-income countries in the range of −0.25 to −0.50.5 Projected estimates of cigarette consumption and tax revenue changes are based on a price elasticity of −0.4, which is consistent with short-term and long-term estimates from Greece.8 This implies that, for every 10% rise in cigarette prices, overall cigarette consumption falls by 4%.

    Smoking-attributable mortality was calculated using the population-attributable fraction method and the US Centers for Disease Control, SAMMEC algorithm, which is based on the attributable-fraction formula described by Levin.11 ,12 The smoking-attributable fractions of deaths in each disease category were calculated based on age-group and sex-specific smoking prevalence rates and relative risks of death for current and former smokers ages 35 years and older provided by the second wave of the American Cancer Society's Cancer Prevention Study.13 Age-group and sex-specific smoker and former-smoker prevalence data in 2010 were obtained from the Hellas Tobacco Survey, a repeated nationwide household survey.14 Age-group numbers and sex-specific numbers of deaths per disease category were obtained from the WHO Causes of Death 2008 Summary Tables.15

    Years of potential life lost (YPLL) were estimated for each age category, stratified by sex and grouped by underlying disease category, and then multiplied by the remaining life expectancy of people at the midpoint of each age range. The total estimated YPLL is the sum of the male and female YPLL within each disease category.

    Results

    Cigarette taxation and consumption

    Based on reported data, the total tax per pack increased from 73.5% (€2.204 of the €3.00 per MPPC) of Tax Inclusive Retail Sales Price in 2009 to 83.7% of Tax Inclusive Retail Sales Price in 2011(€3.348 of the €4.00 per MPPC). Greece's cigarette taxes are below the median of countries tracked by the European Commission.10 The relationship between cigarette price increases and cigarette consumption in Greece is illustrated in figure 1, which depicts the trend in per capita cigarette consumption in Greece over the past decade. Between the years 2007 and 2009 annual cigarette consumption was fairly steady at about 33 to 34 billion sticks sold or 3000 sticks per person per year. However, consumption declined sharply in 2009, reaching a low in 2011 of 24.9 billion sticks sold or 2197 sticks per person. The recent steep decline followed the implementation of new tobacco control policies in Greece and a deepening of the economic crisis.1 ,4 While the tobacco control campaign was primarily intended to improve health, it has also had the positive economic effect of a €558 million influx in new tax revenue, €346 million in 2010 and €212 million in 2011. Additionally, the 4.7% reduction in point prevalence, as estimated by repeated national surveys16 and 16% reduction in per capita cigarette consumption led to consumer savings on cigarette expenditures of €260 million in 2010 and €87 million in 2011.16

    Figure 1
    Figure 1

    Cigarette sales and cigarette prices, Greece, 2000–2011.

    Smoking-attributable mortality and years of potential life lost

    Adult smoking prevalence in Greece in 2010 was 41% (45% among men and 38% among women).14 Based on these figures, 3.8 million Greeks, aged 18 years and older are current smokers.16 By applying the SAMMEC procedures to these figures, an estimated 18.1% of the 105 619 total deaths in Greece in 2008 among individuals aged 35 years and older, were attributable to smoking. In other words, 19 094 individuals died of smoking-related diseases in 2008, which correspond to 284 498 smoking-attributable YPLL.

    Projected public health and economic benefits of a €2.00 per pack increase in cigarette taxes

    An additional €2.00 per pack tax would increase the total price per pack by 50% to €6.00. Assuming an overall price elasticity of −0.4, the price increase would reduce cigarette sales by 20%. At this new tax level of €5.348 per pack, the total cigarette tax revenue would amount to €5.3 billion, representing an increase of nearly €1.2 billion in revenue from the previous levels. A sensitivity analysis applying price elasticity of 0.25 to −0.5 would result in a range of €830 million to €1.7 billion increased revenue. Assuming a more conservative estimate of 30% reduced sales due to an increase in tax avoidance and illicit trade, the total tax revenues would amount to almost €4.7 billion per year.

    In addition, a proposed €2.00 per pack increase in cigarette taxes would have a beneficial impact on public health. Given the evidence of the effects of price increases on adult smoking prevalence, this 50% price increase is estimated to lead 10% of current smokers to quit (almost 380 000 adults) and prevent an estimated 130 000 smoking-attributable premature deaths expected among current Greek smokers. Assuming that Greek youth take up smoking at the same rates as adults, and given the evidence that youth smoking prevalence is at least twice as sensitive to price as adult prevalence, an estimate of almost 125 000 youth ages 14 years and under in Greece would be deterred from taking up smoking, resulting in over 62 000 fewer premature deaths. Merging the number of premature deaths prevented due to quitting and the number due to youth prevention, a €2.00 per pack increase in cigarette taxes could prevent over 192 000 premature deaths in Greece.

    Discussion

    The recent cigarette tax increases have had significant effects in reducing cigarette consumption in Greece, while generating considerable new revenues. Based on existing numbers and projections, an additional €2.00 per pack increase in price would lead to an increase in tax revenue by an additional €1.2 billion and prevent approximately 192 000 premature deaths nationwide, representing significant gains for a country in a difficult economic situation.

    We must note that increases in cigarette taxes might increase incentives for tax avoidance and evasion, requiring effective tax administration to maximise the revenue and public health benefits.17 International data from the European Cancer League and the Foundation against Cancer indicate that approximately 11.6% of worldwide cigarettes sales are illicit.17 This figure is estimated to be lower in Greece, approximately 6–8%.18 However, even adopting a high estimate, the benefits of a tax increase in Greece remain concrete. Adopting effective tax administration practices, as prescribed by the WHO,17 would limit the extent of tax avoidance and evasion in response to the tax increase. Measures such as inclusion of a ‘floor tax’ that levies the new tax on cigarettes held in inventory (to deter stockpiling that appears to have been done in anticipation of recent tax increases), adoption of new technologies for tracking and tracing cigarettes through the distribution chain, and increased enforcement efforts aimed at deterring tax evasion should be applied, and could easily be financed by a portion of the new revenues generated from the tax increase.17

    In conclusion, Greece, and other nations with weak economies, should employ taxation as a crucial measure to promote public health and economic development in these dire times. International economic organisations, led by the World Bank, the International Monetary Fund and the World Trade Organisation, should aggressively pursue programmes and policies in step with the WHO that champion the economic benefits of tobacco taxation. In the case of Greece with its current financial situation, such actions are warranted.

    What is already known on this subject

    • Greece is in an economic crisis.

    • Greece has the highest cigarette consumption in the European Union and recently launched a major effort in 2009 to reduce smoking.

    • Smoking is associated with enormous health and economic costs.

    What this paper adds

    • The recent cigarette tax increases have had significant effects on reducing cigarette consumption in Greece, while generating considerable new revenues.

    • The economic and public health benefits ensuing from the recent cigarette excise tax increase in the year 2011 are estimated.

    • The potential benefits are calculated on an additional €2.00 per pack cigarette tax increase.

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    Footnotes

    • Contributors HRA, CIV, FJC, PKB and GNC had roles in conception and design and analysis and interpretation of data, and in drafting the article and/or revising it critically for important intellectual content. AV, KA and IK had roles in the analysis and interpretation of data. All authors had roles in the final approval of the manuscript. MB had a role helping in manuscript preparation.

    • Funding Funding was provided by the George D. Behrakis Foundation through the HEART project (Hellenic Action for Research against Tobacco).

    • Competing interests None.

    • Provenance and peer review Not commissioned; externally peer reviewed.