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Summary Evaluation On ?tude D’impact Sur Le Projet De Loi Sur Le Tabac...

 

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Economic Evaluation Report on the

ÉTUDE D’IMPACT SUR LE PROJET DE LOI SUR LE TABAC PROPOSÉ PAR LE MINISTRE DE LA SANTÉ ET DES SERVICES SOCIAUX DU QUÉBEC

 

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by

Pierre Lemieux
Economist and Visiting Professor
Département des Sciences administratives, Université du Québec à Hull
(pierre_lemieux@uqah.uquebec.ca)

et

Jean-Luc Migué
Professor of Economics
École nationale d’administration publique (Québec)
(jean-luc_migue@enap.uquebec.ca)

with the collaboration of

Filip Palda
Associate Professor of Economics
École nationale d’administration publique (Montréal)
(filip_palda@enap.uquebec.ca)

Executive Summary

The Impact Study's Methodology and Approach

The Impact Study's argumentation to justify more tobacco regulation bypasses the economic methodology. It does not demonstrate the existence of external costs (i.e., of effects on third parties) nor does it show that there are transfers between smokers and non-smokers that would need to be corrected. The study omits theoretical and empirical research published on smoking in the economic literature. Its general assumption of addiction can hardly stand up to any thorough analysis, and amounts to an argument for government paternalism.

1. The Proposed Legislation's Impact on Health Costs

It is difficult to find in the Impact Study evidence to back up the claim that the proposed legislative measures will reduce tobacco consumption as dramatically as it claims. Economic analysis rather suggests that the proposed regulations would have little impact on tobacco consumption – and would perhaps lead to unintended effects, including among the young.

While it argues that a reduction in morbidity and mortality would lead to lower public health costs, the Impact Study omits the second part of the equation; that is, the fact that increased longevity would mean higher costs to the health care and public pension systems. Not only does the Impact Study overestimate the direct costs of tobacco-related diseases, but it also arbitrarily adds "indirect costs" that it considers to be external costs (i.e., transmitted to third parties), but which are in fact private costs.

The Impact Study almost totally neglects the last twenty years of economic literature devoted to the costs and benefits of smoking, and strongly overestimates both the net cost of tobacco-related diseases, and the reduction of such costs if the proposed law was enacted.

2. Impact on Employment

It appears to us that the impact on employment of a possible reduction in tobacco consumption is analyzed in a very unsatisfactory manner. The Impact Study neglects to properly incorporate job productivity and the fall in real revenues that would follow the proposed legislation – unless one could demonstrate the efficiency of such legislation in a cost-benefit study, which the Impact Study has not done. Furthermore, even in the perspective it has chosen to adopt, the Impact Study produces artificial jobs. It does not consider the possibility that some tobacco manufacturers could shift part of their production out of the province – a possibility that looks even more real given the regulatory standards, not considered by the Impact Study, that the bill would impose on tobacco products manufactured in Québec.

3. Impact on Businesses

To analyze the effects of the proposed law on businesses, the Impact Study adopts an accountant's, instead of an economist's, approach. For example, nowhere is there any reference, even if only methodologically or theoretically, to the preferences of employees who are smokers. Even if one was to accept this approach, the Impact Study grossly under-estimates the costs of setting up smoking lounges in businesses (many cost elements are not included in its estimates), and over-estimates benefits to businesses. If the benefits were greater than the costs, one would expect all businesses to have already pursued such a profitable course of action.

Moreover, the Impact Study seems to ignore the fact that smoking at work is already forbidden, or strictly regulated, in large firms that fall under federal jurisdiction, as well as in the Quebec public sector.

4. Impact on Restaurants

The Impact Study does not provide evidence that secondhand smoke imposes real costs to the employees of restaurants that don't discriminate against smokers. Basing their analysis on a small number of contested American studies (some of which are not even available), the Impact Study concludes that the obligation to build a closed and ventilated smoking lounge, or alternatively the prohibition of smoking, would not affect restaurant sales or would only involve minimal costs. The Impact Study thus neglects the intensity of smokers’ preferences as well as the direct costs involved in building a closed and ventilated smoking section. In any event, some restaurants would be penalized in regards to their competitors.

Even if one admitted the partial estimates given in the Impact Study for the construction of a closed and ventilated smoking sections, this cost still represents on average 1% of a restaurant's turnover. One cannot consider this cost to be insignificant since it amounts to 20% of one year's profits.

5. Advertising and Sponsorship (by Filip Palda)

Research on the relations between advertising and consumption tends to demonstrate that advertising does not create demand, but rather that advertising follows consumer's preferences, produces relevant information, and has the effect of modifying market shares among competitors. Research from economics, business, drug addiction science, marketing, and psychology calls into question the idea that tobacco companies can entice young people to take up smoking, and suggests that the young are mainly influenced by their family and peers.

Even if research results are not all conclusive, the Impact Study relies on very limited empirical evidence. An extensive analysis of the literature cited by the Impact Study also shows that, on several occasions, it provides erroneous interpretations of those studies it chooses to cite.

Not only are advertising restrictions not likely to reach their goal, but they may even have negative, unintended effects on consumers’ health (and perhaps even on youth smoking). And contrary to what the Impact Study claims, the loss of tobacco sponsors would put several sponsored events in jeopardy.

6. Impact on Public Finances

The estimates of the public finance impact are based on completely unrealistic assumptions about the reduction in the number of smokers brought about by the proposed legislation. But even if we accept this approach, the Impact Study's estimates of the budgetary consequences remain unrealistic. The main failures of the Impact Study are the following: 1) it incorporates reductions in health care costs as well as increases taxes paid by smokers who would live longer, but does not take into account the other expenses (health and pensions) that these survivors would impose on the public finances; 2) it forgets to deduct the costs of the general public services that the surviving taxpayers would consume; and 3) it adds imaginary receipts from income taxes.

In the short run, the proposed regulations would lead to net costs for the Quebec government that would be much higher than the estimates given in the Impact Study. In the long run, an important budget deficit would develop, instead of the surplus envisioned by the Impact Study.

7. Property Rights and Public Choice

The Impact Study implicitly assumes that public regulation is the only means of solving problems relating to the peaceful coexistence of smokers and non-smokers; that the cost of the State's intervention would be nil; and that the logic of public decisions is governed by virtuous intentions that will produce the desired results.

Now, on the one hand there exist good reasons to believe that private property rights (in businesses and restaurants) and freedom of contract can efficiently reconcile the preferences of smokers and non-smokers. Indeed, according to the Québec regulation defining what impact studies must contain, such solutions must be considered – which the Impact Study did not do.

On the other hand, Public Choice analysis, a field of economics developed over the last half century, suggests that there are political interests hiding behind the kind of redistributionism put forward by the Impact Study.

Conclusion

The Impact Study is not actually an economic study because it does not resort to the economic methodology and neglects most of the economic research published on smoking-related issues during the last twenty years.


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