Effect of the tobacco price support program on cigarette consumption in the United States: an updated model

Abstract

This study evaluated the direct effect of the tobacco price support program on domestic cigarette consumption. We developed an economic model of demand and supply of US tobacco to estimate how much the price support program increases the price of tobacco. We calculated the resultant increase in cigarette prices from the change in the tobacco price and the quantity of domestic tobacco contained in US cigarettes. We then assessed the reduction in cigarette consumption attributable to the price support program by applying the estimated increase in the cigarette price to assumed price elasticities of demand for cigarettes. We estimated that the tobacco price support program increased the price of tobacco leaf by $0.36 per pound. This higher tobacco price translates to a $0.01 increase in the price of a pack of cigarettes and an estimated 0.21% reduction in cigarette consumption. Because the tobacco price support program increases the price of cigarettes minimally, its potential health benefit is likely to be small. The adverse political effect of the tobacco program might substantially outweigh the potential direct benefit of the program on cigarette consumption.