How cigarette taxes can help cure two Greek ills

Among all the trials and tribulations that define Greece these days, one that has received relatively little attention is its sky-high smoking rate. Greece?s is the highest in the Organization for Economic Cooperation and Development. Greece is an outlier also in that its smoking rate has risen significantly over the past decade.

The country?s fiscal crisis may therefore have a silver lining: It has forced the government to raise tobacco taxes modestly, and this already appears to be reducing smoking rates. Still, much more could be done.

In 2009, a shocking 40 percent of Greeks smoked. That is almost twice the OECD average of 22 percent. In France and Spain, the smoking rate was 26 percent. In the U.S., the rate is half that in Greece. The Greek rate was six percentage points higher than even Russia, the only other developed economy whose rate was more than 30 percent. In Greece, smoking rates exceeded 30 percent even for medical students, a study by Constantine Vardavas and Anthony Kafatos of the University of Crete found.

Perhaps even more troubling is that, in the past decade, the share of adult Greeks who smoke rose by almost 6 percent. Over that period, in the OECD as a whole, smoking prevalence declined by 18 percent. The only other developed country that experienced an increase in smoking was the Czech Republic — but Greece?s rise was larger.

The health effects are predictable. Data from the International Agency for Research on Cancer show an age-adjusted death rate from lung cancer of 48 per 100,000 Greek males. In the U.K., that rate is 33 percent lower. In France and the U.S., it?s 20 percent lower than in Greece.

Cheaper Packs

One of the causes of high and rising smoking rates in Greece has been relatively low cigarette prices. In 2011, a pack of 20 premium cigarettes cost a little more than $5 in Greece, compared with more than $8 in France and more than $11 in the U.K. and Ireland, according to the Tobacco Manufacturers Association. In the U.S., prices vary significantly by state; in New York, a pack costs more than $10.

The prices in Greece have reflected relatively low tax rates compared with other European countries. Before the recent policy changes, that pack of 20 cigarettes carried a tax of less than $4. In France, the tax exceeds $6. In the U.K., it amounts to almost $9.

A variety of evidence suggests that higher taxes on cigarettes reduce smoking rates, especially among teenagers — which is important because people?s lifelong smoking patterns are typically set during their teenage years. That?s why it?s encouraging that in January 2010, in response to the fiscal crisis, the Greek government boosted taxes on cigarettes by about 20 percent. That raised prices for consumers by about 15 percent.

Using estimates of the price elasticity for smoking that have been developed by the economist Jonathan Gruber of the Massachusetts Institute of Technology and others, that tax increase might reduce overall amounts of smoking by 7 percent — and the reduction in smoking rates would be perhaps 2 to 3 percentage points. In fact, recent evidence from the Center for Global Tobacco Control at Harvard University suggests that smoking rates have already started to come down in Greece following the tax increase and an ongoing public awareness campaign. But a much larger increase in tax rates could help to both narrow the fiscal gap and further reduce smoking rates.

A typical concern about higher cigarette taxes is that they?re regressive: Since lower-income people are much more likely to smoke, a higher tax imposes a larger burden on them. In the U.S., for example, smoking rates are substantially higher among lower-income and less-educated people. Yet conventional estimates showing that higher cigarette taxes are regressive exclude the impact of higher price elasticities among lower- income people, and also the health benefit that comes from quitting smoking.

Lower-Income Smokers

In Greece, surprisingly, smoking rates don?t seem to vary that much by income or education. Researchers at University Medical Center at Rotterdam have found that the lowest-income men in Greece are only 30 percent more likely to smoke than anyone else; for Europe as a whole, lower-income men are 50 percent more likely to smoke. Even more strikingly, in Greece, lower-income women are 40 percent less likely to smoke than other women. For European nations as a whole, lower-income women are about 10 percent more likely to smoke.

The absence of a sizeable smoking gradient by income may partly explain why researchers from the University of Athens and Harvard School of Public Health found that, in Greece, cancer mortality doesn?t vary by socioeconomic status. In the U.S., in contrast, low-income people have significantly higher death rates from cancer. Pronounced declines over the past couple of decades in smoking rates among higher-income Americans have contributed to sharply rising inequality in life expectancy. In Greece, life expectancy also varies significantly by income, but smoking patterns can?t explain it.

The same patterns also suggest that higher cigarette taxes wouldn?t be regressive in Greece. Given the dire need for additional revenue, the Greek government should raise tobacco taxes much more than it has so far.


Peter Orszag is vice chairman of global banking at Citigroup Inc. and a former director of the Office of Management and Budget in the Obama administration.