Smoking cessation policies and interventions the world over have found one key policy strategy important - increasing tobacco tax. Tax economists have often explained their arguments for tax increases using the concept of the Laffer curve. They argue that a tax rate of zero produces no revenue. A tax rate of 100% causes people to change their behavior so as to avoid the tax. This produces nothing in terms of revenue. It therefore follows that as tax is increased people will continue adjusting their behavior to ensure that they do not pay that tax or at least as much tax.
This in general is the concept behind tobacco taxes. Policy makers have noted that when tobacco tax is increased a significant number of people makes some modifications in order to avoid the tax. This will include quitting smoking, reducing the number of cigarettes smoked and also preventing new smokers from starting. An interesting observation in America is that as some states increased taxes on tobacco some smokers reacted by stopping smoking altogether yet others found ways round the tax. In fact there are particular things that those wishing to pay the tax and to quit at the same time have done.
In fact the behavior of a particular group of smokers in reaction to the tax increases supports the arguments of some economists that higher taxes would encourage more people to find ways to evade or break the law. This smoker do it by choosing to drive to a place where the taxes are lower to buy cigarettes. Theoretical a raise in taxes has the effect of giving an increasing number of people an incentive to travel to a cheaper place for some cigarettes. Studies have then shown that an average smoker might be willing to travel the extra distance just to purchase cheaper tobacco cigarettes.
Then there is yet another dimension to this tax evasion - roll-your-own cigarettes. More and more smokers take advantage in the US of the federal tax loophole making it possible for retailers to offer them deep discounts on roll-your-own cigarettes. Smokers simply flock to retailers which have high speed rolling machines that, for example, are capable of producing a carton of cigarettes in eight minutes at less than half the price of a carton of Marlboro cigarettes the subject of heavy taxation.
Yet another dimension is that a small percentage of smokers estimated at about 08% evades taxes by bootlegging. There have been records of smokers ordering cigarettes over the internet from foreign countries and some even bringing them in from Indian reserves. A significant number of smokers, studies tell, think about quitting smoking. These therefore are people willing to quit but might not be just ready to. The then buy smalls packs instead of cartons at a time and might as well endure the taxation.
In general smoking taxation has been shown to be effective in countries such as Japan and for that reason has become the most followed model worldwide. In fact some countries have taken a deliberate decision to increase taxes each and every at an ongoing basis. The economic recession has even made tobacco taxation more effective.
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