Law of Diminishing Returns

In the article “The Diminishing Returns to Tobacco Legislation” by Pierre Lemieux, it points out a lot of good arguments and stated what is working and what is not with all the Tobacco legislation set forth by different countries and region in the World. 

One of the most interesting point I find is the fact that people who are heavily influenced, bothered, and affected by the negative health warnings on the packages, and excessive taxes on tobacco sales has already quit.  Those who are still regular tobacco users cherish and value smoking even more.  They have grown to ignore the health signs, and the gradual increase of taxes has not reduced consumption.  The Government and health groups have to think of new idea and approach, so they can further eliminate the use of tobacco.  As stated in the second paragraph, “most fo the potential improvements in consumer awareness have already been achieved.”  These warnings and awareness on tobacco packages have been implemented for over a decade in most countries, so why are new ideas and awareness methods not introduced?

According to Smoke Free Canada (http://www.smoke-free.ca/pdf_1/totaltax.pdf), The Government of Canada, both Provincial and Federal combined, have generated total revenue of $7.5 Billion in the calendar year 2010- 2011, a billion dollar increase within a five year period from 2006, and the number continues to rise.  If the Government is finding ways to warn people about smoking and try to encourage smokers to quit, why is this number moving upwards? 

In Germany, the tobacco tax increase in mid-2011, and reports shows that higher tobacco tax only helps smugglers (http://www.thelocal.de/society/20110807-36803.html) .  This is an example of diminishing return.  When tobacco taxes were on the rise, and when health signs were introduced, a small percentage of tobacco users gave up smoking; however, a large portion of smokers remained.  With all the tax hikes on tobacco, the Government eventually pushed consumers to the point where more people are consuming illegal tobacco, which in turn will increase the amount tobacco smuggles due to the new high demand.  As suggested in the news article, the number of cigarettes sold legally in Germany between 2003 and 2009, sank from 133 billion to 87 billion, while officials believe the majority of the rest have turned to illegal tobacco.

When we turn to Chapter 4, page 128, the book brilliantly point out that most Government implement and continuously increase sin taxes is because it generates nifty revenue for the Government.  As sin taxes increase, tobacco will slowly turn into the same category of drugs as we identify today (marijuana, cocaine…etc), and the increase of sin taxes will only encourage more smokers to turn to smugglers and illegal cigarettes.