For release: May 11, 2005

Contact:	Joe Elstner
	Office:	(314) 444-8902
	E-mail:	joseph.c.elstner@stls.frb.org
	Mobile:	(314) 640-3526
	Charles Henderson
	Office	(314) 444-8311
	E:Mail	charles.b.henderson@stls.frb.org
	Mobile:	(314) 609-5972
	Pager:	(314) 538-9526
Online Press Room:		www.stlouisfed.org/news/press_room/contact.html

Smoking Bans: Who Benefits, Who Loses?

St. Louis, Mo. — Proponents of smoking bans in public places often promote the health benefits of such bans and tout economic studies that suggest prohibiting smoking has little overall impact on spending or sales. An analysis by an economist at the Federal Reserve Bank of St. Louis, however, suggests that such bans could have a disproportional impact on certain businesses, employees and consumers.

The economist, Michael R. Pakko, looked at the economic effects of smoking bans in a paper prepared for the St. Louis Fed's Center for Regional Economics (CRE8). The full paper is available on the Bank's web site at: http://research.stlouisfed.org/regecon/op/CRE8OP-2005-002.pdf.

Pakko said the conclusions reached by most studies on the economic effects of smoking bans tend to be mixed. "Some communities, for example, appear to experience a decline in sales or employment at restaurants and bars, while others appear to experience an increase, at least over time," he said. Pakko also noted that some studies find no evidence of consumers leaving for other establishments where they can smoke, while still others show some effect on bordering communities. Nevertheless, he emphasized that the statistical significance of these findings is often weak, since they are often conducted with limited data. In addition, he said that studies of smoking bans necessarily focus on communities that are among the first to implement such ordinances and, therefore, are more likely to have a proportionately lower population of smokers and/or a smaller number of businesses that would be adversely affected by the ban.

He also emphasized a basic theory that restricting the options available to consumers leads them to substitute other similar products and services. In other words, both smokers and nonsmokers may choose to reallocate their spending, but the ultimate effect will not change total spending on a broad category like "entertainment" when an economic study is conducted.

But the effect of smoking bans on broad measures of economic activity is only part of the story. Proprietors and customers of businesses like bars, bingo halls, bowling alleys and billiard parlors tend to express greater concern about revenue losses from smoking bans. In one nationwide survey, for example, 39 percent of restaurant owners reported expected revenue losses, while 83 percent of bar owners expected losses. On the other hand, Pakko said that family-oriented restaurants, chain outlets, fast-food restaurants and take-out establishments are generally considered less likely to be adversely affected by a smoking ban.

Finally, Pakko suggested that public officials should take another factor into account in their deliberations: the increasing number of establishments that have already chosen to go smoke-free. "In our free-market economy," said Pakko, "the 'invisible hand' guides businesses to provide the goods and services that consumers demand. A government regulation that attempts to force the market toward a new equilibrium, however, may impose both transitional costs and/or long-term hardship for some businesses."

###

Back to top