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The Eclectic Economist

Plain cigarette packaging: healthier citizens, sicker state finances?

France’s tobacconists aren’t very happy with plain cigarette packaging. Reuters

Over the last few years, a new idea for improving public health has been slowly spreading across the world: a ban on selling cigarettes in packages with custom brand designs. Instead of selling branded tobacco, all cigarettes are sold in either plain packages or packages with grotesque pictures showing the health consequences of smoking.

The obvious question is: is it effective at reducing smoking rates? The less obvious one: what are the economic consequences of a healthier population?

Making cigarettes less appealing

The ban on selling cigarettes in branded packages originated in Australia in 2012. Australia’s goal was to reduce smoking rates by making cigarettes less appealing and by making the health warnings more noticeable.

Beyond Australia, England, Ireland and many other countries either have passed or are working on passing legislation to force cigarettes to be sold in plain packages. The laws have received so much attention that even television comics like John Oliver have done shows on the topic.

John Oliver on plain packaging for cigarettes.

These laws have met with a variety of public reaction. In France, which is currently considering a plain packaging proposal, the idea is naturally very unpopular with the owners and employees of the roughly 26,000 Tabac shops that have a monopoly on selling cigarettes there. Some of the tobacconists have even taken to covering speed cameras with plastic bags and dumping tons of carrots in the street in protest.

Public health officials are concerned about smoking because cigarettes kill. The Centers for Disease Control and Contagion estimates that about 480,000 people die each year in the US from smoking-related illnesses, and, worldwide, “current trends show that tobacco use will cause more than eight million deaths annually by 2030.”

Does plain packaging help?

Research into plain cigarette packaging (summarized here and detailed here) suggests that the removal of branding reduces the desire to smoke. However, the actual impact in Australia is in dispute, partly because cigarette taxes were raised around the same time that plain packaging was introduced.

This controversy aside, it remains highly likely that plain packaging does reduce the rate of cigarette smoking. Otherwise, why would the tobacco companies mount such expensive legal battles to prevent plain packaging rules from becoming law?

Furthermore, why would they spend so much money on advertising that makes smoking and cigarette packaging so appealing if they really thought packaging design was ineffective? And these companies must be aware of the studies involving different population segments in different countries, all of which demonstrate the effects of plain packaging on tobacco consumption.

That said, while we agree that plain packaging laws will improve public health and, most importantly, save lives, we also believe there are economic consequences that merit additional attention before a country passes this legislation.

Protesters ‘smoke’ during a protest over plain cigarette packaging in Paris. Reuters

Economic costs of fewer smokers

Note: it should be emphasized that the following points in no way argue in favor of smoking (which neither of us do), nor against plain packaging laws (which we both favor). However, they do argue for further economic analysis prior to implementing these laws.

First, tobacco taxes provide governments with substantial revenue. The US federal government earns about US$15 billion per year from tobacco taxes, while state and local governments earn almost $18 billion from tobacco taxes annually.

Moreover, the states also receive about $7 billion annually from a 1998 lawsuit they filed against the major cigarette companies for recovery of their tobacco-related health-care costs. The money from the “Master Settlement Agreement” lawsuit was originally designed to offset Medicaid costs but has actually been used as a “cookie jar” by most states to fund all kinds of general programs.

Together this means if everyone in the US were to stop smoking, government health expenditures would fall as the population got healthier, but revenue would also decline by about $40 billion.

Because tobacco-related disease and deaths take time to develop, in the short run governments would see a substantial drop in revenue without a commensurate decrease in health care costs. Such a loss in revenue means that other taxes would have to rise, government spending would have to decrease, or the government would have to borrow more money to balance its budget.

Second, eliminating smoking means people live longer, with the most recent estimates being that the average 40-year-old person in the US would live about three more years. Of course, no one is arguing against living longer!

However, it does mean that both public pensions, like Social Security, and private pensions would require more money to support a larger elderly population. More money would presumably have to be deducted from each paycheck to ensure that pensions would be secure, which means less take-home pay for each worker.

Third, when people get sick and die at a relatively young age, their deaths create jobs and opportunities for career advancement. Research by Moscarini and Thomsson into occupational and job mobility found a “decline from the mid-1990s onward, accelerating towards the end of our sample in 2001–2004.”

If this decreasing trend continues, it suggests the overall US labor market is offering fewer opportunities for advancement. As unfortunate as it sounds, improving public health by eliminating smoking would make it harder for young workers to gain experience and move up in business. In the long term, a healthier population produces a more productive, mobile and flexible workforce, but in the short term eliminating smoking is not beneficial to the labor market.

Costs and benefits

In sum, there appear to be clear health benefits when cigarettes are sold in blank or plain packages. At the same time, there are economic consequences to making that switch.

As already noted, we do not want the reader to finish this article with the belief that we are opposed to plain packaging laws and in favor of smoking. In fact, we both lost a dear friend to lung cancer, and one of us has published research in “Tobacco Control,” the leading English-language academic anti-smoking journal.

However, in any debate, it is important for everyone to realize that there may be unfortunate drawbacks to even the best of laws, and that these should be accounted for, literally and figuratively, before a country implements blank packaging laws.

Andy Koppel, who received a PhD in French Literature from Tufts University, co-authored this article, which was also published in French. He was vice president of technical marketing and OEM relations at North Atlantic Publishing Systems and has spent his working life helping to move the printing and publishing industry into the high-tech era. He has no affiliations, investments or connections to any tobacco companies.

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