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On the Economic Analysis of Smoking Bans

By Michael R. Pakko


This paper evaluates the literature on the economic effects of smoking bans. Many studies focus exclusively on aggregate impact and thus may overlook the importance of distributional effects, which reveal inefficiencies often undetectable in analyses of aggregated data. These effects also account for the political economy of smoking bans, igniting controversy and public debate. The political resolution often involves exemptions for certain types of establishments, which limits the applicability of many existing studies to the more comprehensive smoking-ban proposals. The paper also analyzes data from Maryville, Missouri—the first city in Missouri to ban smoking in restaurants—to illustrate some of these points. Federal Reserve Bank of St. Louis Regional Economic Development, 2006, 2(2), pp. 115-30. In Missouri and across the nation, communities are debating the efficacy of banning smoking in all public places, including privately owned establishments. The policy issues involved are multidimensional, but the public debate is often summarized in terms of public health versus economic impact. The focus of policymakers is often directed toward considering the aggregate, or overall, economic effects of smoking bans on business in a community. Data on communitywide economic activity are often readily available, and it might seem that the overall effect of a public policy on economic activity is the appropriate measure to consider. But it is also important to account for the distributional impact and economic inefficiencies that are often imposed by government intervention in the market, particularly in cases where the proposed policy imposes blanket restrictions. These differential effects reveal inefficiencies that are often undetectable in analyses of aggregated data. Distributional effects also contribute to the political economy of smoking bans, as economic interests clash. The resolution of these conflicts often results in legislation that exempts certain types of businesses from these bans. Such compromises represent a political outcome that reduces the potential inefficiency and welfare losses that might otherwise be imposed by more comprehensive smoking prohibitions. However, the prevalence of these exemptions, in turn, limits the applicability of many studies to the more comprehensive legislation that has been proposed in many communities

Year: 2013
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