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HCA 5123 Global Health Program Question: a) How important are the budgetary effects likely to be in the decision to impose a further increase in the federal cigarette excise tax What factors ought to have a major role in the debate What would you add to the CBO’s major disclaimer about its analysis How important should its analysis be in any real decision-making process b) Make sure that you understand the differences between longitudinal analysis, cross-sectional analysis (including logic), and the simulation analysis approaches. Does it appear that the CBO used all three c) It does not appear that the CBO used a Monte Carlo simulation in the final modeling. Why do you think that it did not do so. The states were making large increases in their cigarette taxes during this period. d) What would you speculate would be the interaction between the two (state and federal), and how would that affect your analysis e) Do you think some of that effect was captured by the inclusion of “region” in the regressions. Answer: The case study is about increasing the Federal Cigarette Tax Excise and the effects of cigarette on health and federal budget. The Congressional Budget Office (CBO) is the body mandated to publish the policy so that it can become official. The intention of such policy is to improve the health status of individuals by discouraging smoking of cigarettes. Researchers have proved that smoking of cigarette have consequential health effects on human being. There are many things that have the Congressional Budget Office to come up with this policy; firstly, heath concerns as have been indicated in the case study, heath care spending and to improve earnings. Budget analysts indicate that the effect of the policy would be $ 0.50 increment in the federal excise tax on cigarettes. However, this impact on the cost of cigarettes differs from state to state (Jain, 2012).  The decision to implement this policy has have effects on individuals starting from their earnings to lifestyles. Additionally the government has also benefited from the policy by increasing its tax base. Although, the policy has seen some disadvantages on the government side, the advantages override the disadvantages. How the policy the federal budget The policy forms the basic foundation of decision making for federal budget. This is because the policy will improve the health status of people, reduce their spending and earnings. Studies indicate that if the health of people is increased the government will have its spending per capita on health reduced (Choi Yonghwan, 2013). Consequently, good health will mean a reduction in mortality rates. Cigarette smoking is attached to poor health due to the fact that it has health hazards on the lungs. Therefore, it means that with lower mortality rates, the population will also increase. Again, this has an impact on the spending of the government. A large population will prompt the government to spend on all the areas that are intended to help the common citizens. Therefore, as the federal government benefits from the policy through lower spending on health care of its people, it must again raise its budget to take care of the increased population (Ainsworth, 2012). To ensure that there is a comprehensive estimation of how this policy will have influence on the federal budget, it is important that the CBO does the assessment of how the policy is linked to factors like people’s behaviour, policy impact on people’s health, and its effects on the improvement of health of the people. This may need an in-depth analysis by the CBO and a proper research by outside players, which can be used by CBO as a comparison. Estimation of the effects of the policies The study indicates that there has been a decline in the smoking rate in the United States since 1992. The report indicates that this rate has been constant for some time as long as the policy remains weak such that if the excise duty is not increased, the rate of smokers remains relatively constant (Sanders & Slade, 2013). The CBO used a number of studies of rice elasticity and segregated the elasticity of cigarettes for adults and youths. Even before the policy, there were other antismoking policies introduced especially by employers and insurance companies by charging higher health premiums. Models used in the report The CBO gave the models it used to arrive at its findings; the models were longitudinal also known as the life cycle, cross-sectional and policy simulation models. However, the CBO report dismisses the longitudinal model arguing that it is unstable and presents the current value issues (Lloyd, 2015). It is claimed as giving conflicting findings about the spending on health. Instead, the report based its findings from the regression model. It uses this model to do analysis of the impact of health care cost as well as the effects of reduction in smoking. Basically, such model calls for the collection of data from sampled groups, doing scientific calculations, and coming up with data that is used to represent the actual research being undertaken. As shown in the case study, the smokers had a higher cost of health care expenditure than those who do not smoke. Other areas that were put into consideration by the research were sex, marital status, ethnicity, level of education, among others. This was done so that a comprehensive research that covers every category of individuals could be realized. The comparison of the differences gave the CBO an insight of finding and constructing a health care cost comparison to distinguish a smoker and a non- smoker. However, this gave no difference between the two. The report shows that the percentage of health spending associated with smoking ranges from 4% to 8%, with many disparities within the ages of 45-65 and 65-75. In its final modelling, the CBO seems not have used the Monte Carlo simulation because it was unstable and could only present the current issues. Additionally, this model is seen as giving conflicting outcomes about the expenditure on health. Therefore, other methods could be applicable in the analysis and that is the reason the CBO applied them. The CBO analysis on the impact of the policy on earnings The research indicates that those who some have mostly unemployed individuals. If they are employed, then they have lower wages and perform poorly at work due to smoking (Kushi, 2014). The report indicates that the differences in earnings between those who smoke and those do not is much more than that which could be brought about by the smoking decision  (Chiou & Muehlegger, 2014). Importantly, the CBO analysis gives a clean bill of health to the policy to reduce the expenditure of individuals and also enable the government to regulate the way her people smoke. The report has shown that there is tremendous saving on the side of the government. However, this comes with its own challenges because it may increase the population thus overburdening the government in providing adequate health care for all. However, the report may not be conclusive if the government wholly depends on the policy alone. Other factors seem not to have been put into consideration to add more value to the policy. Other factors besides the effects it has on the federal budget include the effects it would have on peoples’ health, how the government will influence the behaviour, the burden it will put on people, among others. Finally, such policies must always have their negative and positive sides but it is important to have tests of the same. References Ainsworth, R. (2012). Medical Devices Excise Tax (MDET) — A Market- Specific VAT?. SSRN Electronic Journal. doi: 10.2139/ssrn.2086594 Chiou, L., & Muehlegger, E. (2014). Consumer Response to Cigarette Excise Tax Changes. SSRN Electronic Journal. doi: 10.2139/ssrn.1693263  Choi Yonghwan. (2013). Review of 2012 VAT Act and Excise Tax Law Cases. Seoul Tax Law Review, 19(1), 467-496. doi: 10.16974/stlr.2013.19.1.012 Jain, N. (2012). Implementation of the Federal Excise Tax on Indoor Tanning Services in Illinois. Archives Of Dermatology, 148(1), 122. doi: 10.1001/archderm.148.1.122 Kushi, S. (2014). The Effects of the Cigarette Excise Tax on State Smoking Rates,  Healthcare Costs, and Beyond. SSRN Electronic Journal. doi: 10.2139/ssrn.2718595 Kushi, S. (2014). The Effects of the Cigarette Excise Tax on State Smoking Rates,  Healthcare Costs, and Beyond. SSRN Electronic Journal. doi: 10.2139/ssrn.2718595 Lloyd, P. (2015). Excise Tax Harmonisation in Australia at Federation. Australian  Economic History Review, 57(1), 45-64. doi: 10.1111/aehr.12066 Sanders, A., & Slade, G. (2013). State Cigarette Excise Tax, Second-hand Smoke Exposure and Periodontitis in US Non-smokers. American Journal of Public Health, 103(4), 740-746. doi: 10.2105/ajph.2011.300579

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