We’ve written a lot on this blog about taxing cigarettes. The usual arguments focus on health costs and potential ‘internalities’. When you look at the calculated costs of these things you usually get a number much smaller than the tax rate on a pack of cigarettes. Today it was suggested to me that cigarettes are nonetheless undertaxed in NZ. That’s because those calculations don’t include the statistical value of lives lost from smoking. If the value that people place on a life were taken into account at around $4m/life the cost of smoking would be far higher than the tax imposed. It would then take into account the harm to all those around the smoker who would be devastated at the loss of their life.
I haven’t had a chance to think it over in detail so I’m interested to know what you think about the argument. While I don’t have any numbers to back anything up, my initial thoughts are:
- Smokers’ lives aren’t usually all that much shorter than anyone else’s. It’s not like car accidents which claim people of all ages. That makes it difficult to apply the same number, unless we have an age adjusted figure available.
- Smokers do care about those around them so they’ll take into account the feelings of others when they make the decision to smoke. Some of the cost to those around them is thus internalised.
- People close to the smoker have an opportunity to directly bargain with them over their cigarette consumption. Perhaps government intervention isn’t needed to solve this problem.
- VSL calculations are usually done using willingness to pay to avoid harm. That approach puts a number on how much someone values their own life. Does that $4m figure represent the valuation of one’s own or someone else’s life? I imagine willingness-to-pay to avert the death of others is significantly lower. In fact, given people’s willingness to pay to save the lives of blameless and starving African children, I imagine they aren’t going to pay a whole lot to save someone with a pack-a-day habit.
I don’t know how big this number is, but it does sound kinda significant even given my reservations. So why isn’t it included in the calculations of people like Viscusi, Gruber and Koszegi? I’m sure there’s an obvious answer, but I don’t have it so I’m hoping your collective wisdom can help me out here 🙂