Ángel López-Nicolás Grupo de Investigación en Economía, Políticas Públicas y Salud, Universidad Politécnica de Cartagena Belén Cobacho Centre de Recerca en Economia i Salut, Universitat Pompeu Fabra Esteve Fernández Institut Català d’Oncologia ICO-WHO Symposium 2012

1. Ángel López-Nicolása,b
Belén Cobachoa
Esteve Fernándezc
a Grupo de Investigación en Economía, Políticas Públicas y
Salud, Universidad Politécnica de Cartagena
b Centre de Recerca en Economia i Salut, Universitat Pompeu Fabra
c Institut Català d’Oncologia
ICO-WHO Symposium
5th June 2012

2.  EU tobacco tax directives require the
application of a minimum tax on cigarettes
regardless of brand or price category as of
2011
 Some EU member states started applying
such tax earlier
◦ Among them, Spain as of 11th February 2006
 What evidence is there on the effects of the
tax in Spain?
 What conclusions might we draw for tobacco
tax policy in general?

3.  Traditionally based on ad valorem taxes
◦ Encourages price differentiation
 Ban on advertising in 2006 unleashed
cigarette price war well in advance
◦ Most intense in late 2005 and 2006
◦ The tobacco control community called for a
minimum tax
◦ Phillip Morris also urged the government to apply
minimum tax (in order to protect its premium
brands)
 First applied in February 2006, revised
upwards several times since

4. Distribution of cigarette prices in Spain (2002-2011)
Packs of 20 (at 2011 prices)
5
4
€ per pack
3
2
1
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

5.  As expected, the minimum tax lifted the
bottom end and compressed the cigarette
prices distribution, but…
 Smoking also depends on what happens to
other tobacco products
◦ Fine cut tobacco remained taxed on an ad valorem
basis alone until June 2009
◦ And even after then it bears a lighter tax burden in
terms of “cigarette equivalents”
◦ Cigars and cigarillos remain taxed on an ad valorem
basis to date

6. Price of tobacco products in Spain (2005-2011)
Real price index; 2005=100
150
100
50
2005 2006 2007 2008 2009 2010 2011
Cigarettes Cigars and cigarillos
Fine cut tobacco Pipe tobacco

7. Price of tobacco products in Spain (2005-2011)
Price of a 20 cigarette pack or equivalent (at 2011 prices)
10
8
6
€
4
2
0
2005 2006 2007 2008 2009 2010 2011
Cigarettes (pack of 20) Cigars or cigarillos (20 units)
Fine cut tobacco (20 rolls at 0.7 gr. per roll)

8. Structure of the demand for tobacco products
Spain 2005-2011
Market share in 2011 (%)
Cigarettes 91.1
Cigarillos & Cigars 3.3
Pipe tobacco
0.4
Fine cut tobacco 5.1
-4 -2 0 2 4
Change in market share over 2005-2011 (%)

9. Prevalence of daily smoking (National Health Surveys)
2006 2009 Difference
(not statistically
Men significant)
Spain (excl. Canary Islands) 35.09 35.36 0.27
Women
Spain (excl. Canary Islands) 23.84 24.49 0.65

10.  Minimum taxes have avoided ultra cheap
cigarettes
 However, there is no evidence suggesting a
reduction in smoking prevalence
 The explanation appears to be related to
downtrading towards fine cut tobacco

11.  The latest tobacco tax reform in Spain (31st
March 2012) enacts exactly what an industry
spokesman demanded publicly weeks earlier
◦ A reduction of the ad valorem tax
◦ An increase of the specific tax
◦ No change for fine cut tobacco
 The public health community should address
this state of affairs and
◦ Demand an equalisation of the tax burden of
cigarettes and fine cut tobacco
◦ Watch closely the evolution of cigars and cigarillos

12.  The EU tobacco tax directive does not require
Member States to apply a minimum tax on
quantity for fine cut tobacco
 The directive consecrates the price-product
segmentation of tobacco markets across the
EU
 National governments must legislate beyond
the EU minimum requirements in order to
avoid the creation and persistence of the type
of loopholes detected in Spain