over 10,000 children and more than 613,000 adults consume tobacco every day.<sup>2</sup> Globally, antitobacco policies include prohibiting smoking in particular locations to establish completely smoke-free environments, advertising to deter tobacco use, restrictions on tobacco sales by age, smoking cessation programs, prohibitions on tobacco sales close to schools, and taxation. These various policies have produced diverse effects in tobacco use and exposure among populations.

Although media campaigns, tobacco sale prohibitions, and smoking in public places are important policy approaches, tobacco taxation is considered one of the most efficient means of reducing tobacco consumption. As a secondary benefit, it also raises government revenue.[9] Because both effects are desirable from a policy standpoint, the use of taxes is considered economically justified. Additionally, the higher price elasticity of young people makes taxes a good way to fight tobacco use because young people will significantly reduce their consumption in the long run.

The magnitude of price elasticity is central in calibrating the effect of tobacco taxation systems because it determines the sensitivity of demand to a change in tobacco prices. There is extensive research on the price elasticity of tobacco. The _Handbook of Cancer Prevention: Tobacco Control_ , volume 14, reviews the international evidence on the United States and more than 50 other countries. The authors find that price elasticities of demand vary from zero to −0.47 in the United States. In the international literature, results vary: −0.80 in Bulgaria, −0.45 in Canada, −0.53 in China, −0.34 in Estonia, −0.66 in the Republic of Korea, and −0.47 in Ukraine.[10–15] For all 52 countries in the European region, Gallus et al. 2006 estimate a price elasticity of −0.46 using national yearly aggregated data.[16] For the United Kingdom, price elasticity is estimated at −0.5, and, for Hungary, a price elasticity between −0.44 and −0.37.[17,18] For Poland and Turkey, tobacco price elasticities have been estimated at −0.4 and−0.19, respectively, in the short run (−0.7 for long-run elasticity in Poland).[19,20] For India, cigarette price elasticities have been estimated for different income groups, including −0.83 and −0.26 for the lowest and highest income groups, respectively.[21] Among several factors, there are two important ones involved in determining tobacco price elasticities, namely income and age. People in lower-income groups tend to change consumption behavior more given a change in price (i.e. have more elastic demands) relative to higher-income groups.[8] At the same time, younger groups in populations are more responsive to tobacco price increases because on average they tend to be less nicotine dependent, more affected by peer effects, and possess less disposable income.[8] Studies in the United States have consistently shown that younger groups have higher elasticities relative to older groups.[22–24] Hence the importance of the increase in tobacco prices (through taxes) to reduce tobacco consumption among the younger groups of the population.

The major welfare costs associated with tobacco consumption are direct and indirect. The direct costs include the monetary health care costs (hospitalization, medication, medical supplies, equipment, and so on) and non– health care costs (job replacements for sick smokers, insurance, cleaning up the cigarette ash and stubs, packaging, the smoke residue of smokers, and so on). The indirect costs include the loss of productivity because of lost working days related to smoking illnesses as well as the value of the lives prematurely lost.

Some well-studied and well-documented costs not covered in this paper include days of life lost and working years lost because of early mortality.[25] Secondhand smoke has been proven to be an important societal cost of smoking, affecting the health of adults and children.[26] In the state of Indiana in the United States, the

> 2 Children refers to individuals under age 18.

3