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A STUDY OF THE U%S. TOBACCO.INDUSTRY'S BCONOMIC'.CONTRIBUTSON T&THE NATIONi,. ITS FIFTY STATES'.,. ANDiTHE DISTRICT OF COLUMBIA 1979 . Prepared for Covington 6Buriing tig The Wharton.Applied Research Center and Wharton Econometri~c Forecasting Associa.tes, Inc. Philadelphia PA 19104 August 1980.

Sto__dy. ofthe U_.S;,,T obacco Indu_stry`s ~. Economic l;ontribution'~ . - nu...... ... ,.w . - e. -a4 ~ . to the Nation lts Fift States` !a~ndh `Di'stric of-Columhia

Summary LIST OF FIGURES Paqe Ii U6S.. Tobacco Industry Total.Contribution to Gross Nationa2 Product iii . IS UIS. Tobacco Industry Total. Economic Contributions to Corporations, Government Tieasuries, and Labor iv Cha.pter: 1: Introduction 1.1 Process Flow Diagramof.the Cigarette Industry. 41 1.2 Schematic.. Diagram~ofResearch Strategy 8 3.11 Flowchart of TobaccoDistribution System 37 '

Page. Chapter3': Analysis of Direct Contributions 3..1 Revenues of Farming Sector:by State . 23 3.2 Employment of FarmingSector by State 25. 3.3 Direct.Con.tlributions of Farming Sector to.--Stlate Tax Receipts. . 26, 3.4 Auction Markets and Warehouses, Number and Aggregate Sales Revenues by State 27' 3'..5 Auctlion Employment andlWagesby State 29. 3'.6 DirectContributians of Auction Sector to State Tax Receipts 30 3.7 Aggregate Employment and Compensation of the. Tobacco ManufacturingSec..tor by State 3.8 Direct Contributions of the Manufacturingi 32 Sector to State and Local Treasuries 33 3.9 Cigarette Companies:'Sa1es: Force Employment and Compensation 35 3'..10'Sales of the Tobacco Wholesaling Sector by State , .. , 36 3.11 Direct Contributions to.Wholesaling Employment by State . ` . 39 3•12 Direct.Contributions of IntermediateDistri- bution.Sector to State Treasuries. 40 3.13 Percentage of Tobacco Sales Through Retailing Outlets.andlVending 41 3.114 Direct Contribution to. Retailing and Vendfl~ng 6mploymentby State. . 43 3.15 Direct Contributions of the. RetlailingiandVending Sector to State Treasuries 44

1979 MACROECONOMIC.ANALYSIS TOTAL CONTRIBUTIONS Federal State and Local osoes9eo 3Corporate income taxes attributable to support Lnd_ustries are included as indirect, rather than direct, contributions. 7 Figure II_ U.S. TOBACCO INDUSTRY TOTAL ECONOMIC CONTRIBUTIONS TO CORPORATIONS, GOVERNMENT TREASURIES, AND LABOR

Page Chapter 4: AnaIysis.of'Tobacco."s Total. Contributions. 4'.3 Total Economic Contribution of the Tobacco ' Industry as Measured by Selected.Econom.ic Ind.icators'. . ` 55 4L.2 Tob.accoIndustry Total. Contribution to Current Dollar. Gross National Product , 57 4A Tob.acco.Ind'ustry Total. Contribution.to Real. Gross Prodhct 58 4.4 .4 Tobacco.Ind.ustry Total.Contribution to Nationall Income- 60 4.5 Tob.accoInd.ustry Total.Contribution to Personal'. Consumption Eapenditures. 61 4..6 TobaccoInd.ustry Total.Contribution to Fixed Investment. . 62 4.7 Tobacco Industry Total.Contribut.ion to Nominal Industry Output 63 4.8 Tobacco Industry Total Contribution to Private Sector National Employment 64 4.9 Tobacco Industry Total' Contribution to Employee. Compensatio:n in the Private Sector 65 4.10 Tobacco Industry Tota11 Contribution to Federal Government Receipts and Ekpenditures 67 4.111 Tobacco Industry Tota1Contribution to Stateandl Local Government Receiptss andl Expenditures 68

INTRODUCTION The research documented in this report was,und'.ertaken to determinethe.contributions made by the United States tobacco industry to national and'.state eeonomies.in 1979. Thiss research was conducted bythe Wharton Applied Resea.rch: Center (ARC)) in collaboration with Wharton.6conometric.Forecasting Associates. (WEFA),. Inc,.. , - .. . . For the purposes of this report,, economic contributions are defined as the expenditures,., andd theefEects of these expenditures, on goods'and services attributable too thefarming., manufacturing,,, distribution,, and.saleof.tobacco or tobaccod relatedproducts, These.expendituresand effects include . employmentl,, wages generated by this employment„ personal consumption expend.itures,, capital investment, government tax.x receipts and expenditures, and imports and exports.. • . Th~is.study was am update and.ex.tensdon of researchcon: ducted byy the.same organizations in.197.e1-79 to evaluate the tobacco industry's 1977 direct and indieect contributions to the DI,S'. economy.. The 198q'.research~undertook.and'.made improvements to the quali~tyand quantity of the microeconomic analysesand' data. . bases of the tobacco industry's coresectorsl and the many other iindustriesthat supply and suppor.t the tobacco i'ndustry.. This micraeconomic examination was the foundation on which Wharton measured the tobacco.industry's direct contribution in.197A.. A direct.contributiion is any economic.effect thatt cann be directliy traced to the farming, production, distribution, or marketing activities of the tobacco industry.. 0 ~ U1 1 The core sectors studied are farming;auction wa.rehousing; O. man.ufacturing,;: intermediate distribution„ includ.ingg wholesaling:and.manufacturers'sales force activities; "~and'd retailing andlvending.- ~

Summary Page I Total Eoonomic Contribution of the Tobacco: Indbstry as.Measvred'.by Selected Economic . Indicators II. Tota.L. TObacco Industry Contributionn to,. I Nominal Industry Output viiii III Total Contribution of Tobacco Industry to: Private Sector National Emplioyment (x IV' Total.Contribution of Tobacco Industry to: Federal TaxRevenuesx V Total. Contribution of Tobacco Industry to State and LocaD Tax'. Revenues xi VI. Salesof Tobacco. Industry Core Sectorsxiv VII Purchases of Tobacco.Industry Farming Sector xiv VIISPurchases of Cigarette Manufacturing Sector: xv IX: The Tobacco.Ind'ustry's Direct Contribution.to National Employmenti xvi X The TobaccoIndustry's Direct Contribution to ' Pederal.Tax Revenues xuii XI The TobaccoIhd.ustry,•s Direct Contribution to ` State Tax. Revenues . xviii XII Tobacco:'s. Direc.t and Indirect Contributions to State Employment xx xIII'. Tobacco^s Direct.and Indirect Contributionstlo Personal Compensation: xxi XIVTobacco"s Direct.Contri~butionsto ' Statee and Federal. Tax Receiptss xxii

TABLE OF CONTENTS Page Summary LnCroduction _ Key Findings i v 1~. Introduction ' 1.1 Purpose of the Study 1 1.2 ReLationship,with the Sponsor 2 1.3 Def'inition of Economic Contributions 3 1.4 General Approach 3 .. Research. Procedures 2.1 Overview 9 2.2 Mlicroeconomic AnalysisProcedures 11 2.3 Application of the Macroeconomic Model 15 2.,4 Developmentt of State Employment Indirect Contributions. 18 2.5 Reconciliation Procedures 19 3.AnalysisOf Direct Contributions. - 3.1 Overview 22 3.2 Direct Contributions to. State Economies. 22 3..3. Direct Contributions toNattli~onal Economy 51 4. Analy.sis Of Tobacco'sTo'.tal Contributions - . Direct Andl Ind'irect - 4I.1 Overview- 54 4.2! Selected Economic Indicatars. 55 4'..3'. Contribution.of TobaecobyCategoryof. Fina11 Demand 56 4.4. Contribution of Tobaccoto Sector Outputs,, Employment and Compensation 57 4..5Contr.ibution of Tobacco to Federal.and State Tax Collections 66 Appendicesa A - Process Flow Diagrams D- Mpthodollogy EB. 75 C - State Output Listings D - Definitiions of Macroeconomic Variables, 9.3. Q W 147 51T and Standard Industriall Code(S'IC) Classifications's of I~nput-Sectors C.4 0' 0D. i-A

Paqe. 3i16Purchases of Tobacco Farming Sector. 45 3..17Purchases of Ci~garette. Manufacturing. Sector . 46 3.,18 Cigarette-Related Support Industry Saless as a Percentage.of the. Total Domestic Sales of theInff.ustry473.19~ E]nployment.in.Support Industries for. ' Productionn of GoodS and Servi~ces used, by Ci~garetteManufacturers 48. - 3.20. Direct Contributions of Skipport Ind.ustriestoEluployment and State T3xes , 50 3.21 The Tobacco.Industry's. Direct.Contribution to National Elnploy,ment 51. 3.22 Tobacco's Direct Cbntribution: to" . Federali Tax. Receipts - 52' 3.23 Tobacco`s. Direct Contribution to State Tax. Revenues. 53~