Philip Morris Inter-Office Correspondence: Teenage Smoking and the Federal Excise Tax on Cigarettes
To: Mr. Harry G. Daniel   From: Myron Johnson   September 17, 1981
Summary of Image Page One Memo reviews study from the National Bureau of Economic Research (NBER) entitled "The Effect of Government Regulation on Teenage Smoking." Author recognizes "the quality of the work, the prestige (and objectivity) of the NBER" Author therefore recommends that "we take seriously their statement that '...if future reductions in youth smoking are desired, an increase in the Federal excise tax is a potent policy to accomplish this goal.'" [click on image to enlarge to full size -- 24K]
Summary of Image Page Two "Most researchers, myself included, have calculated that the best estimate of the price elasticity of cigarettes in about -0.4, i.e. that a 10% increase in the retail price of cigarettes will cause a decline of about 4% in cigarette sales." "The most important finding, and the one of greatest significance to the company, is their calculation of the price elasticity of cigarettes among teenagers... a 10% increase in the price of cigarettes would lead to a decline of 12% in the number of teenagers who would otherwise begin to smoke." [click on image to enlarge to full size -- 23K]
Summary of Image Page Three "Among teenagers the prevalence of cigarette smoking is highly correlated with income." "In my study, I found that the cummulative smoking incidence among boys in 1976 was about the same as in 1979 up to the age of 16, but past the age of 16 (the age at which many of them would have access to a car), the 1979 incidence was substantially below that of 1976." "When it comes to a choice between smoking cigarettes or cruising around in his car, the average teenage male would probably choose the latter." [click on image to enlarge to full size -- 27K]
Summary of Image Page Four "Given the evidence that individuals are considerably less likely to initiate smoking after age 25, it is quite possible that the cohort of young smokers who never begin to smoke as a result of the tax increase would never become regular smokers. As a consequence, over a period of several decades, aggregate smoking and its associated detrimental health effects would decline substantially." [click on image to enlarge to full size -- 15K]
BACKGROUND NOTE: This useful internal Philip Morris memo, "Teenage Smoking and the Federal Excise Tax on Cigarettes," reveals how effective the anti-smoking commercials of the late 1960's and early 1970's were at decreasing the upward trend in teenage smoking during that period. It also outlines exactly how much adult and teenage smoking rates can be expected to decrease for every incremental rise in the price of cigarettes. There couldn't be a more useful document to demonstrate that raising taxes on cigarettes decreases adolescent smoking rates.
Quotes: Most researchers, myself included, have calculated that the best estimate of the price elasticity of cigarettes is abou -0.4%, i.e., that a ten percent increase in the retail price of cigarettes will cause a decline of about four percent in cigarette sales. Many of us have hypothesized that price elasticities are different for different demographic or socio-economic groups, e.g., that price increases would have less effect on the higher income groups and on the older and therefore more habituated smokers, than on other smokers...The authors of this paper...have used the results of the 1966-70 Health Examination Survey of the National Center for Health statistics, and have constructed an elegant longitudinal and cross-sectional model of teenage smoking behavior. This has made it possible for them to calculate the price elasticity for teenagers and compare it with the generally accepted price elasticity of cigarettes for the total smoking population.
The authors conclude that the anti-smoking commericals represented a shock to the underlying upward trend in teenage smoking in the mid-1960's and early 1970's, particularly in the first year in which they were aired, but that the trend reasserted itself the following year, although teenage smoking remained at a lower level than would have been the case in the absence of the anti-smoking commercials....
The most important finding, and the one of greatest significance to the company, is their calculation of the price elasticity of cigarettes among teenagers. They calculate that the smoking participation elasticity is -1.2, which means that a ten percent increase in the price of cigarettes would lead to a decline of 12 percent in the number of teenagers who would otherwise begin to smoke. Their calculation of the quantity smoked elasticity for teenagers is -1.4, which means that a ten percent increase in price would lead to a 14 percent decline in cigarette consumption by teenagers. This is in contrast to the aforementioned -0.4 elasticity for the total smoking population.
...Among teenagers the prevalence of cigarette smoking is highly correclated with income (from either allowances or working) while there is no similar correlation between smoking prevalence and income among adults.
...In any event, and for whatever reason, it is clear that price has an pronounced effect on the smoking prevalence of teenagers, and that the goals of reducing teenage smoking and balancing the budget would both be served by increasing the Federal Excise Tax on cigarettes.
...It is worth noting that government actions designed to reduce smoking in the late 1960's and early 1970's served to moderate an underlying upward trend in teenage smoking, while any government action taken now will accellerate its present downward trend.....
Anne Landman American Lung Association of Colorado, West Region Office Grand Junction
Title: Teenage Smoking and the Federal Excise Tax on Cigarettes Date: 09/17/1981 Type of Document: Memorandum/Report Author: Johnston, Myron Recipient: Daniel, Harry G. No. of Pages: 4 Site: Philip Morris http://www.pmdocs.com/ URL: http://www.pmdocs.com/getallimg.asp?DOCID=2001255224/5227