PRS5 - Tax Losses and Gains Attributed to Smoking Cessation in Korea

Abstract

Conventional economic analyses of smoking cessation may exclude important economic gains. From the governments’ perspective, smoking represents a source of tax revenue and a public health cost. Apart from smoking-attributable mortality and morbidity, there is an established relationship between smoking and reduced productivity. In this research we assess how public investments in smoking cessation that changes productive output can influence future government tax revenue and social transfer costs. The analysis described here follows the generational accounting framework developed to assess intergenerational relationships between morbidity and mortality and lifetime tax revenue and social transfers for government. Based on the current prevalence of smoking in Korea, a cohort model was developed for smoker, former-smokers and non-smokers. The model simulated the lifetime discounted fiscal transfers for each of the aforementioned segments in Korean Won (KRW) based on 2012 costs. In addition to the health costs, smoking results in foregone earnings and tax due to premature mortality and decreased productive output of smokers. The average per person health cost savings from smoking cessation were estimated at KRW974,000. Smoking cessation resulted in average lifetime tax revenue gain of KRW 4,214,120 and KRW 1,442,050 per person for the age groups of 24-45 and 45-65, respectively. The corresponding average tax revenue loss due to lower tobacco consumption were KRW2,085,023 and KRW 883,014. The average fiscal return on investment from smoking cessation for all age groups was estimated at 1.27. Investing in smoking cessation was estimated to have positive fiscal returns for the government due to reduced mortality, morbidity, increased productivity and wages. Although ROI declined by age, reduced smoking prevalence generated significant per person tax revenue gains for government across all ages. After factoring in expected tobacco tax revenue loss from quitting smoking, the net tax revenue for the Korean government was positive.