A new paper, co-authored by Andrew Leicester of Frontier (Europe), suggests that increases in tobacco taxes in Britain over time have increased the well-being of smokers. The findings lend weight to the idea from behavioural economics that smokers suffer from ‘time-inconsistency’: some would like to cut down or quit smoking when looking ahead, but in the short-term give in to their addiction to tobacco. Higher taxes can act as a valuable commitment mechanism helping smokers achieve their goals, and so improve well-being. This could give a rationale for government intervention in tobacco markets, over and above the idea that smoking causes costs to other people.
The paper, published in the June 2016 issue of Fiscal Studies, was written with Peter Levell of the Institute for Fiscal Studies (IFS) and was completed while Andrew was at the IFS.
The study draws on almost 20 years of data from the British Household Panel Survey (BHPS), a large-scale survey tracking respondents over time since 1991. The BHPS includes a 36-point scale of subjective well-being based on responses to a set of questions known as the General Health Questionnaire. Using statistical methods, the paper finds a modest but positive impact of higher real-terms tobacco taxes on the well-being of likely smokers, compared with those less likely to smoke. However, the study found no evidence that the introduction of bans on smoking in public places had a similar positive effect on smoker well-being.
Frontier (Europe) regularly advises clients on issues around behavioural economics and tax policy.
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