Health Care And Increasing In Taxes On Cigarettes Term Paper

Health Care And Increasing In Taxes On Cigarettes - Term Paper Example An increase in price of a cigarette pack with 10% would result in a decrease, in demand, by about 4%. With regard to cigarette taxation, there have been increases in tax by various governments as a way of controlling the consumption of cigarettes and in essence reducing demand. In order to understand the effects of tax increases on cigarette use, there is a need to know two things; the magnitude of results that the tax change will cause and the link between the consumption changes and price change (Taylor & Akila 94). Economists and researchers have been using estimates of price elasticity of demand, which refers to the change in percentage of consumption, consequently from a 1% increase in price, to evaluate the effects of change in prices of cigarette on cigarette consumption. Overall, the price elasticity for a cigarette is within the range of -0.14 to -1.23, but mostly it falls within the narrower range of -0.3 to -0.5. This implies that a change in price of tobacco will result i n a slight decrease in demand. In spite of the fact that higher cigarette taxes reduce sales or consumption, cigarette tax income increases because the loss in income as a result of lower sales is more and could be offset by the increased taxes (Cordes 440). Policy makers in the tobacco control department and tax revenue docket will always agree that, provided the price elasticity of demand for cigarettes is not more than -1, then total revenue from sales increases when price increase.... In spite of the fact that higher cigarette taxes reduce sales or consumption, cigarette tax income increases because the loss in income as a result of lower sales is more and could be offset by the increased taxes (Cordes 440). Policy makers in the tobacco control department and tax revenue docket will always agree that, provided the price elasticity of demand for cigarettes is not more than -1, then total revenue from sales increases when price increase. As evidenced in this study, the price elasticity of demand for a cigarette is less than one, meaning that in as much as tax will have an effect on the demand for cigarette consumption, it will also yield additional tax revenues. The passing into law of tobacco control policy with the increasing prices will eventually have significant results in reducing tobacco consumption, making cigarettes expensive to juveniles (Besanko et al 151). Do increases in cigarette taxes have any other effects? In response to the increased taxes on cigar ettes, some problems can be seen to be rising. They include theft, interstate smuggling and channeling. Channeling primarily describes the changes in ways people obtain a product they seek. Making one by rolling it is a good example. The most serious one of the three above is smuggling. Smuggling can be related to moving goods across international borders to avoid paying tariffs or duties for the product. There are commonly five characteristics of a product that are likely to be smuggled somewhere for a profit. They include the product tax differential; transaction cost; transportation cost; the effort required to obtain the product and the possibility of police or authority intervention. Cigarette thus makes the perfect product for smuggling. The product is not heavy and has large tax