to their peers. Lower dependence on nicotine, larger peer effects, and limited disposable income may cause younger people to be more responsive to tobacco price shocks (Jha and Peto 2014). Some evidence supports this claim. Chaloupka and Grossman (1996) and Lewit and Coate (1982) find that, in the United States, individuals ages under 18 exhibit much larger tobacco price elasticities (between −1.44 and −1.31) than adults (between −0.27 and −0.42).

Lower-income households tend to show higher price elasticity of demand relative to mediumand higher-income groups (World Bank 1999). Empirical research in a variety of countries, including Bangladesh, Canada, China, Indonesia, the United Kingdom, and the United States, suggests that the sensitivity of smoking prevalence to changes in cigarette pricing is greater among lower socioeconomic strata. However, the evidence is still mixed in other cases, including the Arab Republic of Egypt, Bulgaria, and Turkey (IARC 2011). Tobacco elasticities can be expected to increase in the future as more-responsive young generations become the largest consumer group (Fuchs and Del Carmen 2018). In the long term, tax policy may become more effective at influencing behavioral changes and reducing tobacco consumption.

# **e. Costs of tobacco: Life, work, and medical expenditures**

Several studies have quantified the economic cost of smoking, though most have focused on high-income countries. Goodchild, Nargis, and Tursan d’Espaignet (2018) find that tobaccorelated diseases accounted for 5.7 percent of global health expenditure in 2012 and that the total economic costs of smoking, including health expenditures and productivity losses, were equivalent to 1.8 percent of the world’s gross domestic product (GDP) (US$1.85 trillion in purchasing power parity [PPP] U.S. dollars). The highest share, according to these authors, was in high-income countries (US$1.12 trillion in PPP dollars), where the tobacco epidemic is most advanced.<sup>3</sup> The earlier estimates of Lightwood et al. (2000) indicate that the gross health cost of tobacco in high-income countries is between 0.1 percent and 1.0 percent of GDP. However, nearly 40 percent of the health and productivity costs related to tobacco are already concentrated in developing countries (Goodchild, Nargis, and Tursan d’Espaignet 2018).

Public and private health care accounts for the major share of the costs of tobacco use, beyond the price of household consumption. Tobacco-related health care costs can be either direct or indirect. Direct costs include the monetary value of the consumption of goods and services that is motivated or compelled because of tobacco use. These include health care costs (hospitalization, pharmaceuticals and supplies, medical equipment, and so on) and non–health care costs (insurance, job replacements for sick smokers, cleaning up cigarette residues and packaging, and so on). For example, in the United States, tobacco-related diseases are associated with direct health care costs of 1.1 percent of GDP or 8.7 percent of annual health care spending (Xu et al. 2015). Some medical cost estimates are available for the countries in the sample. Pichón-Riviere et al. (2014) estimate the annual direct cost of tobacco-related disease in the Chilean health system at approximately 0.6 percent of GDP. In Indonesia, annual direct health care costs attributable to tobacco consumption amounted to 2.5 percent of GDP in 2015 (Kristina et al. 2018). The total economic cost of tobacco use in Bangladesh was estimated at 3 percent of GDP in 2004 (WHO 2007).

> 3 Goodchild, Nargis, and Tursan d’Espaignet (2018) estimate the economic cost of smoking-attributable diseases at US$15 billion in low-income countries, US$359 billion in lower-middle-income countries, and US$354 billion in upper-middle-income countries, all in PPP U.S. dollars.

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