T'
1 1 : E 3
ic e e-a s: ic -4: -., is de f in ez: I s e p err
en :a z e chance E:=an 7e 5- 1 -~O=
a one c7znge 4-- zcn_z-.=er ?rice. To r exam-ple
if c- e e a s t 4-: it
of cizaret:e de=and uas a :)re nerzen: priae
increase ,,;c*-. .~.c za,.:-se a 3.77
decrease ~_-
good of elasticizies is necessary for assessinz
the
-)ac:s of ~,fgher cizz-:et:a taxes. :f the ?rice
elas:-c-=,: c' :-e
de=an:! for cigarezzes -.;-as to be hiz'-, t*,e
?er:entage '--crease
g-,ver7"-enz 7eve--.;es resu-1:~_ng from a tax
--*-c-:ease would be
'ess than :-e De:tentaize 4--:-zease in the tax,
due to shar---!-.- redzced -:cl=es.
Tor t .ne pu--?Ose a', assess~_-z t-e short te=
impacts of cigarette
taxes. an assessment of t-z- average price
alasticit-; of the total ccnsumer r
demand for cigarettes is 1: is not necessary to
se?ara:e, for
exa=?~e, tie re-ducticn tn :-e number of smokers
from the da-4", number of
cigarezzes =cked: oni- t-a total effects are
!=Dortanr. T -a r .he=cre,
is no: necessan- to among t-e different
elasticities of age
grou-s' SOCZA., z7oups 07 :~:-Jeen heavy and
ligar- smokers.
:he averaze elasticities z"-sc-ussed :Ln t-e
re-jort cannot be usecl, nc-.:a-.*
for aLl pu:poses. For exar--ple, health
researchers would --:t_sh ta the
price elastic-'-:,: of the de-_and generated by
heavy smokers.
Some researchers have -fo,.Lnd that price
elast-Ici:, of --'e--and sector is
s-_i;ni!_4canr_'v !owe:- zhar. :he avarige
elaszicit7 an6, therefore. ::1e impact o_- price
increase-z on the zed"_czion of
~e =-.;c .h
?r.-*--Ie=s =ighz ' *, ess than on the reduction
o' zovern=anz rave=Ue.
4 review ----: the lirerat-z:e :)-,Dvided mar.,
use-fu: arcicles an the su'_--e:r
rice eIas z4_ci:--- !or c~_zaze:tes. ;e focused an
the %ort~- A-merican _izera u e,
3 ~_-ca .`i_--_ erenzes --cial fac:zrs 7-__4z'-z
cat:se subs::an:_4a_I-:
respznses :a 7rice chance-= in ZuroDe as
z.-imnared :a Canada :r :he
5 :azes. A :isz ~f the 7e-.~resentaz~:e Ncr:h
Ameriz,~~. artizie--
-.4-a :e:)or-.
C)
BATCO document for Province of BrItiSh COIUMbia 20
April 1999


bad
A
:n a rev4_e*-: of :'-e __-.-.ad4_-7~ -.;e *----:e
Zo-,d
f::r cizaret:es. 7-ie firs: -.;as a -:,a:~ar 5,
_===SO7~ an_~ Mclec-_~' w--ch reicz:ed a ?-:~_:e
ct -0.75. :-.e se--=-.-- Caradian sz-.~d, was
carz~_ed out the Ontarlo --ask
.-tce = S=:k_4nS az~ re?crted szud-: found ve:-:,
s4_-ilar
results: a -jrice elastic~_:7, ol- -1.73.
s~-% the da:a *--ases of --nese s---jd--es, we
~-_--:e re:inec
the metnodolos4es
--e ` in
.;Sed -_- m'-_ studies, and reneazad the anal
-,sis w~:h _'. re. ed =et*.-mds. As
,_4escr4oe,~ = ::-e re;--rz, :',e f4--d:~nss of
:his ar-alysiS confir=ed the
e:.as=iciz_4es foune ~_- the ea-.1--er studies.
Beca-use the ref4--ements, our
=-_zduced *-:2'-er staz~_s:ical ccrre_',a:4_ons
than :he vrevt,ous sz-adies
and, t-ere--ore, the results of our analsis 'r-ave
not zriv conf_~=ed the
resUts of :he pre,.tous --,o-zk, buz also
increased our confidence in the
of the _`endings.
',:e found :'-.is paztiz-zlarly anccuraging since
the U.S. literature reports a
-.:~de range of ;r4ce elast~c`tJes in the various
--apers listed in the
osra7ny- _r =zs: of tie arz:icles, the range is
--rom -0..' to -0.9, with
sc=e re-crts showt-i figures even outside t'is
rather -'ride ranze.
3 ecause c-z this rance, we car-.4-ed out some
anal-~sis of our own and
::~e zezhcdc:=&y used f__. our Canadian study to
*_.S. data. As
-_;esc-:j_'ec i.. the :etcrz, we found slightly
-gher elasz~cj ies for the
t
"nited States thar --or Canada. S-_'-ilarly c::!
the Cana-'ian results, cut
anal'sis :roduced -_zIn starist 4cal
correlat~.zns, and :onfir-ned the -.esu-'zs
z. those '--.S. va=ezs that found elasticities
near the UVDer bound of the
.anee 4_-d:.:ated abv:e.
BATCO document for Province of BritiSh Columbia 20
April 1999


t_:7 Z-25spss,~: s
~'asz~z-:~as and zr4e,4 to =7~:zz_ --easc-'s ~-r
:'-a --Szre-_=n=4es.
:-_uld z_=~enzif:! se-:erai reaS:ns Ire Out-:-led
:-a
_-=--ar, ----: :a--a '~ind4--ZI
Zxhibizs !.;, and 13 show t-e zznsu=p-.:.cn of
-_z=72-retzes Canada and
:-a Un_~zad -7-.a::es. -he SCI:.,; jj- 4:1 :-a
d4-z-.a=s `-cates a
smoking pro:~ezls-_'z-: -.;'aich, afzer sc=e
e%-zer4_-entat_-2n. --~as fou:~:; to *:)e 1-
zigaretzes per da- per adu-:: -:a--e ;_- ---nada
aad 15.3 zizaret-:as zer ad-.~_'::
--a in :*,a Un--':ad States.,
7 Xh4'Z)jtS '.:i and '2 clearl, show --'-a 'ecline
in. c--;a=-et::e cons-=?tJ n
:he Depression of the 193C' s. 1B shows a
s-_';n_1_-'icant drop i=
Consumption in the ',:nited States afte: 1953 whem
:he link bet-.;aen cigaret:e
-moking and lung cancer was esta.-*is~-ed;
curiously, nc such dez-'ine oczurred
Can ad a . After 1968, cc-.s-,=Dt-'cn Aron
n ped visibly the Urn~zed States as
z
he result of ste-.Ded-up ~:=na:' -; a7
. . _gns aza=st smok4_ d the ba.=!ng of
z4 garec:e advertis~_-ig on z-alevis-_'on. In
Canada, :he7a was nc visible _~`ecli%e
o--: consu=ptlon, al ..ough :"-a stazist~_:al
analysis indicate a zzand :-eversal
the 1970's, as ex-31ained ix. t-e renort. Fowever,
the of that reversal-
was com?ansated the ez_fecz of dec--f-.1-s real
;rizes.
Exh_4bizs 2A. and Z3 show :'-.a "basiz" s--ok:Lnz
propezst-:4-es of =a,, 20 %-ea:s Of
age and older. ':*-,a propen-sity is ex;:essad as
tne a,:erage nu=~er of cLzarezzes
?er 7ezz, and re7-a:es to :-.a ent~-e -population
ir- t`a defLned _;roup, i.e. 4-t
cludes non-smokers. The jopu_~aticn :~n this grou?
excludes, however, :he
"old" generacion :;efined ~_- the fooznote.
As explained the re;:rt, an exa=inarion of -_szCr
4cal zz-garetze
cors-a==tion e ;7ou= 'ndicated t~-: the
fol:c-.;:.ng
sex an: a3
zroac assu=;tz_zns prov---e a zaa-s--nably simple
=czal of -,-a relat-4ve
sno 7, p ro -)en s --* t y o fjul a z icr. z rc u
p stne a-.-erage nu==er a:
dailv cizare::as bv fena-es -.-ea:s anc over zne
'alf _,:_ tne
nu=~_-er smoked '--:- the =-=-'e grou-7 (Cefz_ned
as -,-a "basic"
propens--y"~; i-e of :eenagerz "5 to is are
tne .;.-men born a 1696 an-.; men
z*ne '_'n-zes~ States .-%-.a
p-::7-2ns:.:4_es.
CD
BATCO document for Province of BritiSh Columbia 20
April 1999


and :'_2 Z150 57~Z'-; rEa 1. Z e S Z :. Z Z 7Z e S
n4 ted Sta:es. "-E=*" az :-e
:e_-a:e-_: to t-e a'.- zons-=a: n e
n e an a I , s s c o -. s i s z: e d o f f n z a c
r r el a -_ _-' c n o e t'.: e e:. t '.-I E
-;ropensiz...
:-e '-_o:~:= Par.: of and -1B and Z~-e -)r_~ce
S'ncwr :he :ot)
t -. 7-e
-e resL::s :'--'s anal,sis are SlIcu'r. _X:!IZ_'
e:-.iatL.=s .;sed in the ana--,sis are shou-n 4--
the *oo::z= -:)arz c--: t-e
=cre ~eza4__ed ex::-'anazion o-_~' z:-.e
a~:)-_oach used in :-e anal%-s~_s is
:-e --e-?c=:.
:n br~ief :arms, zuo ty es of analysis were
-.3e=-_'o==ed the f~rsz t-De e-,c-.)Iored
.p
::-e =elaz~__-n between the ann-.;zI clanszes or
vo.L*j=es and prices, the second type
ex;)I=red :-e relazion be:-.;een :*~e absolure
leve-s o-- vclumes Z-d prices. "I,. I e
&=:=ach -.3rovides iz_4c=_at4_or. on short tern-
elaszicizi~es, :he second
cn icne :a-= elastictties.
7 he effev:s or disposable 4--.z--=e we=e a:so
included ~_.I :he oziginal equac-lons,
t -..;ere -found to be stazistizall-.- ---'can:.
7his co-f=ed :he
7 esul:s z--: many other stud~-es re-)crted in zhe
1-_':erature.
s*-c-.;.-. ~_- Ec~ibit 3, the s~-.-rt te=
elasticity of ---e de=and _`cr
Cigarettes was found to 'oe a-_jrox~_-ately -0.75
in Canada ard -0.3 in the
iN. '_'nized States. 7he long te= elasziciz, was
found to be *-.--'z-e:-: azprox~=ately
-0.2 --'- Canada and more :~an -1.0 in :-e !~-ited
Szaces.
:n add4:~za to :he devendenze on prJce, zhe
ann=a-I chan2es _~- zi;aretze
*.rc.,.=es ---so showed a de--,en--:e-.ce an a
:rend that cou:_ no: 'oe exnlaLned b-,
:- or ~-co-_e. --his -_ren_~ -..:as josi:_4-.,e,
ooth Canada and in :"e
?,:--:
S s n t b u z u r n e i e z aiv e z h e 7 ea z a
'D C t; n r e s
--e e%ze;zion --7e 1315-1 -.e"
~7 e7~_~ -.;as Lncer=-z;:ed se':E:Z_ ea-s.
CD
L"I
_r_:,
BATCO document for Province Of BritiSh Columbia 20
April 1999


?o -nz :,e-a -=re -z~:
er, szro= sr:-: 4-n --=-a! =~-zes
- - -a 7es
z7 t :L-i`:.:ence :' -.;':s c- :-e ana:---S~S
ana ;aS fel%:hat these resu-:5 s-:~;Id 7.== be a
z-Z wever, :L-r-'us4cn ---e -st --r Doin--.z
':-e 'aza
Ber:.--S noc chance :-e zz)tcl-zS~-z.-.-z zf :"-.a
ana-'-:sis
7 e`uz~-z :.-.a :c a e:--.zenz.
c-z::--..e--: -4- another re;~o=, pzesen:
--ede=a:. tax reg-.;:.at--'z;ns te:=` to
?e---:e:--:aza ~nfla--4-on. The --'ede--a-- :ax
-4-.Icreases, zomb-z=ed -zt-zh a
re--"zze-~ raze of ;ene:-a-I -'n--Iation anc'
--arge -L-1creases --'- ci;arezze :axes in
se-.era- przv:.nces, such as klberta, Ontario and
New Br=swick, cause
-;-e:%- s~-rnificaa: increases -z-.i the real
jr--'zes of cigarettes 4-n Cazada. e
esz~~--zed -4-creases are shon in --::*--"---z:
21. it is est~maied thaz :'-e
a-.erage cozsumer price of cigaret--as '--c--ease
from 198'-~ to 19E-- by
:2!: an~ fr= 1962 to 1985 bv 25Z, even --- no
---urz*-er changes are a=zlie't :0
tax regulations. The :985 :rice --;~l 'oe sign if
'-.ig~-er
7 e-=: ze---s t*-_-n it has '-een d-zrz-:!Z tne
=a5Z SO years.
Zz -.,Ss cn elaszicJ:ies are
czrrecz, a 7% drop :~n c4zare:ta sales can
~---e ex--ecte- -1 ?83 and a 12Z drcT :383.
comared w4-zh 1922. -*-' :houah
:'-ere =ay -b:eLso=Ie t-e lag :L-i the -mc:,-:-=:
re-=::4-on :o price --hanges, a s'---rD drop
cizazetze sa-es can '--e exvec:ed in :he -ex: fe-z
,ears as ~-idica:ad in
BATCo document for Province of BritiSh Columbia 20
April 1999


ILLIONS OF
G-RE7-=-'S
70
60
50
40
30
20
to
Ooo
C!GARETTE CONSUMPTION
C ANA DA
O(w.)
CD
BATCo document for Province of British Columbia 20
April 1999
I
195, 19,2 ~971 1981


f
9
9
CIGARETTE CONSUMPTION
U-S A.
cil
BATCo document for Province of British Columbia 20
April 1999
1 C.: 1940 14-Z 5 0 1960 1 S 70 2C.


C~ -N
E, i NE x
sc
BASIC PROPENSITY 'NPER YEAF
cc 00 0
00
woo
100()
0 5 1~50 1960 1970 196:
BATCo document for Province Of BritiSh Columbia 20
April 1999


L
14 C EA L:;=;C=-' IN---%c--X
20
100
1480
000 BASIC PROPENSITY (PER YEAR)
*0
000
NO
coo
00
0
100
COO
FOOO
Cl~
U-1
cr,
BATCo document for Province of British Columbia 20
April 1999


Im
>
--I
CL
0
CD
0
<
CD
0
0
F
a
cr
Ito
to
P.. a Is- sk- Mr a--K -* ..,A .-U..
..1a " , w
j-IjjCI ELASTICITIES AND GROW-1-11 TREUDS
E0 IIA*H0H (1)
(Long teran)
c c
CANADA
1911Y 0. 91. 12.0% A .2Z
I'l 16 1 IM? -1 .08 12. 6% -2.6%
Price EIa9LICILy
Ammal Crowth Tumid Before 1969
Ammal Growth Trend From 1969
LIASTICITIES FOR CANADA:
Short Term: CK -0.75
I-ol" Term: -0.9
(0
\ /h V-
Vit Smokiiij, p rop~.mjijty 1-1- 1,, o
Vo s mol,iog In V-11 11
I'll Cig.'Iuel-Le pltc~! III yLNII. II
Po CigaretLe price III year 0
V.,
VII-1
+ c p
Average imma) munioul, of ciparettes timokt,d by
.111 Inales Ill lon ?0 aml
I hnit III$-, age I.-J I.,
I"(111ATION (2)
C-
12.,1Z -0. 17.
-0.79 1?.. 2z ..1 .117.


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i`~ -4.
31.
L
n 2
Z7.
Iwbi$
V 2 ir
71
;
U
-
.e
m
-63.
;Zi
BATCo document for Province of British Columbia 20
April 1999


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BATCo document for Province of British Columbia 20
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BATCo document for Province of British Columbia 20
April 1999


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BATCo document for Province of British Columbia 20
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BATCo document for Province of British Columbia 20
April 1999