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2 Tobacco tax revenues as a share of total government revenues, selected countries Percentage of total government revenues accounted for by tobacco taxes
Source publication
This chapter reviews a variety of issues related to the taxation of cigarettes and other tobacco products. The empirical evidence showing that higher cigarette taxes result in higher cigarette prices is reviewed. This is followed by a discussion of the econometric literature examining the impact of prices and taxes on the demands for tobacco prod-...
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Citations
... SimSmoke models cigarette tax changes. Changes in price are translated into changes in smoking prevalence using prevalence elasticities from demand studies (Chaloupka et al., 2000). Canadian studies (Azagba et al., 2015;Gagné, 2021) obtain elasticity estimates consistent with those from other high-income nations (Chaloupka et al., 2011). ...
Objectives:
The public health impact of nicotine vaping products (NVPs) is subject to complex transitions between NVP and cigarette use. To circumvent the data limitations and parameter instability challenges in modeling transitions, we indirectly estimate NVPs' impact on smoking prevalence and resulting smoking-attributable deaths using the SimSmoke simulation model.
Methods:
Canada SimSmoke uses age- and sex-specific data on Canadian population, smoking prevalence and tobacco control policies. The model incorporates the impact of cigarette-oriented policies on smoking prevalence but not the explicit contribution of NVPs. The model was calibrated from 1999 to 2012, thereby projecting smoking prevalence before NVPs were widely used in Canada. The NVP impact on smoking prevalence is inferred by comparing projected 2012-2020 smoking trends absent NVPs to corresponding trends from two Canadian national surveys. We further distinguish impacts before and after NVPs became regulated in 2018 and more available.
Results:
Comparing 2012-2020 survey data of post-NVP to SimSmoke projected smoking prevalence trends, one survey indicated an NVP-related relative reduction of 15% (15%) for males (females) age 15+, but 32% (52%) for those ages 15-24. The other survey indicated a 14% (19%) NVP-related smoking reduction for ages 18+, but 42% (53%) for persons ages 18-24. Much of the gain occurred since Canada relaxed NVP restrictions. NVP-related 2012-2020 smoking reductions yielded 100,000 smoking-attributable deaths averted from 2012 to 2060.
Conclusion:
Smoking prevalence in Canada, especially among younger adults, declined more rapidly once NVPs became readily available. The emergence of NVPs into the Canadian marketplace has not slowed the decline in smoking.
... To estimate the health and economic benefits derived from increased tobacco taxes, the model considers three price increase scenarios with different timeframes. The first scenario is a short-term and conservative one, where previous studies have suggested that in the short and medium term approximately 50% of the reduction in consumption is due to a decreased prevalence of smoking, while the other 50% is due to reduced consumption by people who continue to smoke (Chaloupka et al., 2000;IARC, 2012). In this scenario, we assume that 50% of the reduced consumption is due to the reduction in prevalence (I p = 0.5), which leads to an increase in the number of people who formerly smoked. ...
Tobacco tax increases, the most cost‐effective measure in reducing consumption, remain underutilized in low and middle‐income countries. This study estimates the health and economic burden of smoking in Argentina and forecasts the benefits of tobacco tax hikes, accounting for the potential effects of illicit trade. Using a probabilistic Markov microsimulation model, this study quantifies smoking‐related deaths, health events, and societal costs. The model also estimates the health and economic benefits of different increases in the price of cigarettes through taxes. Annually, smoking causes 45,000 deaths and 221,000 health events in Argentina, costing USD 2782 million in direct medical expenses, USD 1470 million in labor productivity loss costs, and USD 1069 million in informal care costs—totaling 1.2% of the national gross domestic product. Even in a scenario that considers illicit trade of tobacco products, a 50% cigarette price increase through taxes could yield USD 8292 million in total economic benefits accumulated over a decade. Consequently, raising tobacco taxes could significantly reduce the health and economic burdens of smoking in Argentina while increasing fiscal revenue.
... Similarly, the time horizon covered 10 years, starting in 2021, to account for short-, medium-and long-term effects of the policy changes [20][21][22][23][24][25] . For example, the model assumed that, in the short term, most of the smoking prevalence decrease would be driven by higher quitting rates. ...
Introduction:
Tobacco consumption is associated with nearly 30,000 deaths annually in Nigeria alongside other adverse health and economic effects. Our objective was to estimate the health and economic implications of the current cigarette labelling policies (text-only health warnings (HW)); new HW policies in the country (adding graphic HW with up to 60% coverage), and plain packaging policy as recommended by the World Health Organization.
Methods:
We used a probabilistic state-transition individual microsimulation model, considering natural history, healthcare costs, and quality-of-life losses associated with main tobacco-attributable diseases; and the potential effects of packaging and labelling policies. We used three scenarios: a) text-only HWs covering 50% of the pack, b) introduction of graphic HWs of 50% (and later increasing to 80%) of the pack, c) plain packaging with HWs covering 80% of the pack.
Results:
A total of 748 deaths are averted in the current situation; 7,478 and 14,208 deaths can be averted with the new policy and with plain packaging, respectively. The number of cardiac, cerebrovascular, and cancer events that could be averted by adopting text and graphic HWs are 3,093, 5,093, and 1,346, respectively; increasing to 5,876, 9,676, and 2,557, respectively, with plain packaging. Up to 251,794 years were lost due to early deaths and disability, and ₦144.6 billion (USD 469 million) in health costs could be saved with HWs covering 50% to 80% of the pack over 10 years. With plain packaging and graphic HWs covering 80% of the package 478,408 years and ₦274.7 billion (USD 895 million) would be saved.
Conclusions:
The new cigarette labeling policy in Nigeria may yield significant health and economic benefits over 10 years. Moving the current policy to plain packaging can significantly improve these benefits.
Implications:
The new cigarette labeling policy that Nigeria is implementing should aim to achieve 100% compliance with its current regulation and the logical next step: plain packaging with large warnings. The present study adds evidence on the potential health effects and cost savings of these levels of implementation, which is valuable for local policymakers.
... The estimate of price-inelastic demand for cigarettes seems reliable, as most estimates for the price elasticity fall into the range from -0.25 to -0.5 for high-income and -0.5 to -1 for LMICs. 34 It also corresponds to the existing estimates of price elasticity in SEE countries from country-specific studies based on the microeconometric analysis. 16 35 36 The separate estimates of the price and income effects highlight that the price and income elasticities did not simply add up to affordability elasticity. ...
Background
The empirical evidence shows that tobacco consumption is strongly associated with its affordability. The nominal growth in tobacco prices imposed by taxation should exceed or at least keep pace with nominal income growth, ensuring that tobacco products become less affordable over time. No analysis covering affordability issues in the Southeastern European (SEE) region has been conducted prior to this research.
Objectives
The study aims to examine trends in cigarette affordability in ten selected SEE countries over the period 2008–2019 and the impact of affordability on the consumption of cigarettes. On the policy side, it aims to support conducting of more effective evidence-based policy of tobacco taxation.
Methods
The relative income price of cigarettes and the tobacco affordability index are used as affordability measures. The panel regression was run to estimate the impact of affordability measures and other covariates on cigarette consumption.
Results
The affordability of cigarettes in the selected SEE countries has decreased on average but showed different patterns over the observed period. A decline in affordability has been more dynamic in Western Balkan (non-EU members) countries and low-and-middle-income countries within the SEE region. Econometric estimation confirms affordability as the main determinant of tobacco consumption, indicating that a decline in affordability considerably reduces tobacco consumption.
Conclusions
Despite the evidence, affordability is still widely ignored by SEE policymakers when designing national tobacco taxation policies. Policymakers should be aware of the risk that future increases in cigarette prices could lag behind real income growth, making tax policy less effective at reducing consumption. Reducing affordability should be the paramount consideration in designing effective tobacco taxation policies.
... Indonesian economists argue that increasing excise tax is considered an effective way to reduce consumption (Hidayat & Surjono, 2016). According to Chaloupka et al (Chaloupka et al., 2000) a 10 percent increase in the excise tax rate from retail prices would reduce cigarette consumption by 4 percent in developed countries and 8 percent in developing countries. The policy of implementing excise tax in Indonesia has changed several times. ...
Framework of Convention for Tobacco Control is the international regime and norm that provides regulation for cigarette and tobacco industries in global level. Indonesia has its narrative in declining FCTC ratification proposal. This study attempts to describe Indonesian interest and sovereignty as part of third world country over FCTC as international regime. The method uses analytical descriptive with qualitative approach using sovereignty, international regime compliance, and national interest concept in the framework of international regime. In addition, dependency theory is also used to emphasize the relationship between Indonesia and FCTC. The main reason of Indonesian narrative against FCTC agenda is historical roots with national heritage and the tobacco industry contribution to Indonesia economy. In other words, iobacco products in Indonesia is no longer concern of health issues, but also the economy and culture. Beside that, Indonesia position is in line with sovereignty principle that apply also for US and Switzerland as the country which do not ratify FCTC in its national regulation on tobacco. The elaboration of this research is divided into two parts. The research found that the FCTC are not that harmful to the business of international cigarette company such as Phillip Morris International, it even creates a new business opportunity for them. The FCTC also believed to form a dependency relationship, where the industry of developing country such as Indonesia is dependent on the global interest which is mostly sponsored by developed country to be able to grow.
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... This suggests that consumers of cigarettes are not so sensitive to price changes. The cigarette price elasticity in the Philippines is similar to the results of low-and middle-income countries that range between -0.5 and -1.05 (Mushtaq, et al., 2011;Chaloupka, et al., 2000). It is also within the range −0.56 to −1.10 for the cigarette price elasticity of demand in the Philippines, estimated by Cheng and Estrada (2020). ...
The study estimated the total price elasticity of demand for cigarette and select alcohol
products in the Philippines as an important input for tax policy aimed at reducing alcohol
and cigarette consumption and raising much needed government revenues. The estimation was conducted by applying autoregressive error regression on the quarterly time series data of the volume of removals and retail prices of cigarettes and alcohol products in the Philippines over the period 2012 to 2021. The study supports the findings of earlier studies that cigarette consumption is price inelastic. Price elasticity of demand for cigarettes is about -0.83, meaning that a 1% price increase could lead to a 0.83% decrease in consumption. Results for price elasticity of demand for beers is elastic at 1.48, meaning that a 1% increase in the price of beer would produce a 1.48% decrease in consumption. Furthermore, it was found that price elasticity of demand for distilled spirits appears to be unit elastic while wine is highly elastic at 1.03 and 8.51, respectively. The models developed in this study are free from problems on specifications such as serial correlation and heteroscedasticity. Policymakers may consider these results in view of future excise tax reforms.
... First, price responsiveness in lower-income countries may be higher because alcohol users have fewer resources relative to users in wealthier countries. Second, given the generally lower levels of education in lower-income countries, economic models of addiction predict that the demand for goods such as tobacco and alcohol is likely more price responsive [10]. Third, the availability and prices of complements and substitutes likely differ between high-income and lower-income markets (e.g. ...
Aim:
To measure the impact of taxes and prices on alcohol use with particular attention to the different context of rising alcohol consumption in low- and middle-income countries.
Methods:
Systematic review: we searched MEDLINE, Embase, EconLit and LILACS, grey literature, hand-searched five specialty journals and examined references of relevant studies. We considered all reviews that included studies that quantitatively examined the relationship between alcohol prices or taxes and alcohol use. At least two reviewers independently screened the articles, and extracted the characteristics, methods, and main results, and assessed the quality of each included study. We identified 30 reviews.
Results:
There was overwhelming evidence that higher alcohol prices and taxes were associated with lower total alcohol consumption and that price responsiveness varied by beverage type. Total own-price elasticities of alcohol demand were consistently negative and substantial enough to be policy meaningful; total own-price elasticities for beer, wine, and spirits were found to be about -0.3, -0.6, and -0.65. Reviews generally concluded that higher taxes and prices were associated with lower heavy episodic drinking and heavy drinking, although the magnitude of these associations was generally unclear. Reviews provided no evidence that alcohol price responsiveness differed by socioeconomic status, mixed and contradictory evidence with respect to age and sex, and limited evidence that price responsiveness in low- and middle-income countries was about the same as in high-income countries.
Conclusions:
Taxes are effective in reducing alcohol use. Moreover, increasing the price of alcohol by increasing taxes can also be expected to increase tax revenue, as the demand for alcohol is most certainly inelastic.
... Research confirms an inverse relationship between price elasticity and age, with estimates for youth price elasticity of demand up to two times higher than those obtained for adults (Gruber, 2000;Ross & Chaloupka, 2003;Harris & Chan, 1999). Evidence also suggests higher price responsiveness among individuals with lower socioeconomic status (Chaloupka et al., 2000). The estimates of price elasticity of cigarette demand for low-and middle-income countries (LMICs) are higher than the price elasticity estimates for high-income countries (IARC, 2011;USNCI & WHO, 2016). ...
Background A substantial body of evidence demonstrates that significantly increasing cigarette prices via cigarette tax increases is the most effective way to reduce cigarette smoking in addition to producing higher tax revenue. In Bangladesh, the complicated tiered ad valorem cigarette tax system, with a low base price for each tier, has made tobacco tax a less effective instrument to control smoking while also creating opportunities for cigarette manufacturers to avoid taxes. In addition to these existing challenges, in fiscal year (FY) 2019-20 the Bangladesh government increased the difference between low-and medium-tier base prices, making low-tier cigarettes even more affordable. This price change, together with a significantly lower ad valorem excise tax for low-tier cigarettes, created a window for manufacturers to expand the market for low-tier cigarettes, which not only made low-tier cigarettes more accessible to low-income smokers but also resulted in revenue loss for the government. This study attempts to estimate the possible reduction in government tax revenue resulting from British American Tobacco (BAT)'s expansion of the low-tier market and its reduction in supply of medium-tier brands. Additionally, this study analyzes the impacts of cigarette tax policies and makes policy recommendations to prevent cigarette companies' further attempts to avoid taxes by expanding the low-tier cigarette market. Methodology To estimate the loss in tax revenue and to analyze the effect of different tax policies, this study utilizes the WHO Tobacco Tax Simulation Model (TaXSiM), applying brand prices and sales volumes of BAT's cigarette brands for FY 2019-20 provided by the National Board of Revenue (NBR). First, the baseline tax revenue and industry revenue from BAT's cigarette brands are estimated. Then different scenarios are designed, comprising different actions from BAT and different tax policies by the government. Using TaXSiM, this study estimates the tax revenue and industry revenue under different simulated scenarios. Comparison of results from different scenarios with the baseline results are made to estimate the tax revenue gap and to estimate the effect of different tax policies on preventing manufacturers from expanding the low-tier market and on increasing tax revenues. Results This study estimates that the government revenue gap due to BAT's introduction of a new low-tier brand in FY 2019-20 is around 2.73 billion to 9.84 billion Bangladeshi taka. This study also finds that increases in cigarette price without a change in excise tax rates Tobacconomics Working Paper Series | www.tobacconomics.org | @tobacconomics 3 would result in a large increase of industry revenue (ranging from 2.13 billion to 7.73 billion taka), which might induce BAT to further expand its low-tier market, which in turn would result in a higher tax revenue gap. Comparing the baseline results with the results of the simulation scenario where the government increases the base price of low-tier cigarettes along with imposing a uniform ad valorem excise tax rate for all tiers, this study finds the estimated revenue gap to be 34.90 billion to 42.01 billion taka. Also, under this scenario BAT's revenue is estimated to be lower compared to the baseline results. This implies that BAT would be less motivated to introduce a new brand to the low tier with this policy intervention. The game theoretical analysis also confirms that imposing the uniform ad valorem excise tax along with an increase in the base price of low-tier cigarettes would be a dominant strategy for the government, discouraging cigarette manufacturers like BAT from expanding low-tier brands while ensuring significant increases in tax revenue. Conclusions There is a high level of commitment from the government to control tobacco use in Bangladesh, and cigarette taxes are a major source of revenue for the Bangladesh government. To control tobacco use and increase cigarette tax revenue, the findings from this study lead the authors to strongly recommend that the Bangladesh government should simplify the cigarette tax structure by imposing a uniform tax for all tiers along with a significant increase in the base price of each tier. Further, this study finds that the least effective policy option is to increase only the base price of cigarettes without increasing the excise tax rates, which would induce cigarette manufacturers to expand the low-tier market and in turn would result in higher tax revenue loss.
... 21 Macroeconomic studies in high-income countries indicate that these groups are also more sensitive to price changes. 22 There is thus a need for behavioral economic studies that allow for the comparison of the impact of price on demand by different subgroups: type of tobacco, age, and SES. ...
Introduction
Macroeconomic studies have shown that young individuals who smoke, and have a low socioeconomic status respond more strongly to price increases. Most of this evidence stems from research on factory-made (FM) cigarettes. With the rising popularity of roll-your-own (RYO) tobacco, there is a need for studies on cigarette demand that distinguish between both.
Aims and Methods
This study examined whether individual demand differed for FM and RYO tobacco, and across age, and socioeconomic (income and education) groups. Purchase tasks for FM and RYO cigarettes were included in the 2020 International Tobacco Control (ITC) Netherlands Survey. Adults who smoke daily (n = 1620) stated how many cigarettes they would smoke in 24 hours across eight prices. Four demand indices were derived: intensity (consumption at zero costs), alpha (rate of change in elasticity), P max (turning point elasticity), and breakpoint (lowest price where consumption equals zero). The indices were tested for subgroup differences.
Results
Individuals who smoke RYO tobacco indicated higher intensity, and greater alpha than individuals who smoke FM cigarettes. Participants aged 25–39 had lower P max, and 18–24 year olds displayed higher breakpoints. Participants with low income displayed higher intensity, and lower P max than other income groups. No associations were found with education.
Conclusions
Individuals who smoke RYO tobacco indicated higher price sensitivity than those smoking FM cigarettes, supporting the need to harmonize tobacco taxation. Taxation may be especially beneficial to reducing consumption among individuals with a low income or smoke RYO tobacco. Substantially higher prices are needed in the Netherlands to achieve the desired results.
Implications
Individuals who smoke daily were willing to pay substantially higher prices than the current market prices, indicating the room and need for much higher taxation levels. Demand for RYO tobacco was more sensitive to price changes than demand for FM cigarettes. Taxation should be raised at equivalent rates for FM and RYO cigarettes. Taxation appears to be especially effective in reducing consumption among people who smoke RYO tobacco and low-income individuals. It remains important to combine increased taxation with other tobacco control measures.
