Impact of the smoking ban on food and beverages services sector sales in the Czech Republic

• Thesis title in Czech: Důsledek zákazu kouření na tržby sektoru stravování a pohostinství v České republice
• Thesis title in English: Impact of the smoking ban on food and beverages services sector sales in the Czech Republic
• Academic year of topic announcement: 2017/2018
• Thesis type: Bachelor's thesis
• Thesis language: angličtina
• Department: Institute of Economic Studies (23-IES)
• Supervisor: doc. Petr Janský, M.Sc., Ph.D.
• Author: hidden - assigned by the advisor
• Date of registration: 18.06.2018
• Date of assignment: 18.06.2018
• Date and time of defence: 09.09.2019 09:00
• Venue of defence: Opletalova - Opletalova 26, O206, Opletalova - místn. č. 206
• Date of electronic submission: 26.07.2019
• Date of proceeded defence: 09.09.2019
• Opponents: Mgr. Kateřina Chadimová

Guidelines

Before the smoking ban had been enacted in the Czech Republic, predictions about its impacts on Czech pubs have differed
across all the parties involved. Economists, politicians and businessmen haven’t had a clear idea on the effect of this ban on
sales. Some have opposed this ban saying that smokers will leave these premises, resulting in a decrease in sales, while
others claimed that it will attract non-smokers who wouldn’t have otherwise enjoyed these services. Now, a year after the
ban had been enacted, it is still not clear whether this ban had a significant effect on the sales. In this thesis, I will be
studying what is the effect of the ban on sales of Czech pubs and determine the long term and short-term effects of this ban.
Doing this, I will be trying to answer whether sales in pubs have been impacted by this policy, and perhaps I will help
determine if changes in sales should be considered before enacting such policies in other countries.
Although no study has been done concerning this topic in the Czech Republic, many studies on the effect of smoking ban on
sales in bars and restaurants have been conducted worldwide. According to Dearlove JV, Bialous SA, Glantz SA (2002), the
tobacco industry claims that smoking bans reduce profitability of bars and restaurants and continues to lobby against smoke
free policies, while other studies, such as Alamar B, Glantz S. (2004), claim that these policies increase profits and value of
restaurants. Other study conducted by Centers for Disease Control and Prevention (2004) that studied the effect of smoking
ban in restaurants and bars in Texas has concluded that no statistically significant changes in restaurant and bar revenues
occurred after the smoking ban took effect. Such conclusion has also been reached by Cornelsen L, Normand C (2014). Their
study on the effect of smoking ban in Irish bars has shown that the impact on sales appears to be very small, insignificant.
Conclusions of studies conducted on this topic vary greatly. The reason why working on this topic is important is that more
studies conducted would help legislators make better, more objective decisions on passing similar, smoking-restricting laws
in the future.

Methodology
I will be using a linear regression model where I will be running a regression of sales on the following variables:
Household disposable income to account for economic growth, as increases in disposable income might be used by
households to enjoy more leisure, which might be time and money spent in pubs. The data on household disposable income
is obtained from the OECD public database of economic indicators in Czech Republic.
To account for economic growth, I will also introduce variables for GDP growth rate and unemployment rate. I will be
regressing on both of these variables instead of just one of them to avoid possible bias in estimators of their parameters, as
these variables are probably highly correlated. Data on GDP growth rate are obtained from a public CZSO (Czech statistical
office) database of national accounts. Data on unemployment rate are obtained from a public CZSO database of employment,
unemployment.
Finally, a dummy variable is introduced to account for the smoking ban enactment in time t, i.e. this dummy variable will be
equal to 0 until 27.05.2017 (enactment of smoking ban) and equal to 1 after 27.05.2017.
To control for changes in prices, I will adjust sales to national CPI for food and beverages from a public CZSO database
Consumer price index according to The Classification of individual consumption by purpose (COICOP).
This regression will be similar to the one used by Alamar B, Glantz S. (2007) in the way economic growth is accounted for
and I will be using sales adjusted to national CPI as used by Cornelsen L, Normand C (2014) in their demand model.
It is expected that estimated coefficients of household disposable income and GDP growth rate are going to be positive. This
would mean that higher household disposable income would make households spend more money in pubs and that higher
economic growth would result in higher sales in pubs. The estimated coefficient of unemployment rate is expected to be
negative, as unemployment tends to fall with economic growth, which, as mentioned, results in higher sales. The coefficient
of the dummy variable is what I will be interested in. If the coefficient turns out to be statistically significant and positive, it
would show that enacting a nation-wide smoking ban in pubs had resulted in increased sales in pubs. If the coefficient turns
out to be significant and negative, then it would show that enacting a nation-wide smoking ban in pubs decreased sales in
pubs in Czech Republic, and that this decrease should be considered before enacting such policies in other countries. One
more possible estimate of the coefficient can be a statistically insignificant coefficient, meaning that the dummy variable
plays no significant role in sales in pubs and that sales are, and have been, mostly affected by economic conditions unrelated
to this smoking ban.

References

Bibliography
Dearlove JV, Bialous SA, Glantz SA. Tobacco industry manipulation of the hospitality industry to maintain smoking in
public places. Tob Control. 2002;11:94–104.
Alamar B, Glantz S. Smokefree ordinances increase restaurant profit and value. Contemp Econ Policy. 2004;22(5):520–525.
Cornelsen L, Normand C. Impact of the Irish smoking ban on sales in bars using a large business-level data set from 1999 to
2007 Tob Control. 2014;23:443–448.
Alamar B, Glantz S. (2007) Effect of Smoke-Free Laws on Bar Value and Profits. American Journal of Public Health.
2007;97: 1400–1402.doi:10.2105/AJPH.2006.095315)
Adams S, Cotti Ch. (2007) “The Effect of Smoking Bans on Bars and Restaurants: An Analysis of Changes in Employment,”
The B.E. Journal of Economic Analysis & Policy: Vol. 7: Iss. 1 (Contributions), Article 12.
Centers for Disease Control and Prevention. (2004) Impact of a smoking ban on restaurant and bar revenues, MMWR
Morbidity and Mortality Weekly Rep. 2004 Feb 27;53(7):150-2.