Other Public Sector Study

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    Time to Quit: The Tobacco Tax Increase and Household Welfare in Bosnia and Herzegovina
    (World Bank, Washington, DC, 2019-01) Fuchs, Alan ; Orlic, Edvard ; Cancho, Cesar
    This paper uses an extended cost-benefit analysis to estimate the distributional effect of tobacco tax increases in Bosnia and Herzegovina. The analysis considers the effect on household income of an increase in tobacco prices, changes in medical expenses, and the prolongation of working years under various scenarios, based on data in three waves of the national Household Budget Survey. One critical contribution is a quantification of the impacts by allowing price elasticities to vary across consumption deciles. The results indicate that a rise in tobacco prices generates positive income variations across the lowest income groups in the population (the bottom 20 percent). At the same time, tobacco price increases have negative income effects among middle-income and upper-income groups. These effects are larger, the higher the income level. If benefits through lower medical expenses and an expansion in working years are considered, the positive effect is acerbated among the lowest income groups. The middle of the distribution sees the income effect turn from negative to positive, and the top 40 percent, although continuing to experience a negative effect, see the magnitude of this effect diminish. Altogether, these effects mean that increases in tobacco prices have a pro-poor, progressive effect in Bosnia and Herzegovina. These results also hold within entities and across urban and rural areas.
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    The Distributional of Impacts of Cigarette Taxation in Bangladesh
    (World Bank, Washington, DC, 2018-06-01) Del Carmen, Giselle ; Fuchs, Alan ; Genoni, Maria Eugenia
    Despite the obvious positive health impacts of tobacco taxation, an argument raised against it is that poor households bear the burden of the increased prices because of their higher share of spending on tobacco. This report includes estimates of the distributional impacts of price rises on cigarettes under various scenarios using the Household Income and Expenditure Survey (HIES) 2016/17. One contribution of this analysis is to quantify the impacts by allowing price elasticities to vary across consumption deciles. This shows that an increase in the price of cigarettes in Bangladesh has small consumption impacts and does not significantly change the poverty rate or consumption inequality. These findings stem from relatively even cigarette consumption patterns between less and more welloff households. These results hold even if one considers some small substitution through the use of bidis, which are largely consumed by the poor. The short-term consumption impacts are also negligible compared with the estimated gains because of savings in medical costs and the greater number of productive years of life.
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    Regressive or Progressive?: The Effect of Tobacco Taxes in Ukraine
    (World Bank, Washington, DC, 2017-09-27) Fuchs, Alan ; Meneses, Francisco
    Tobacco taxes are usually considered regressive as the poorest individuals allocate larger shares of their budget towards the purchase of tobacco related products. However, because these taxes also discourage tobacco use, some of the most adverse effects and their economic costs are reduced, including lower life expectancy at birth, higher medical expenses, increased years of disability among smokers, and the effects of secondhand smoke. This paper projects the effects of an increase in the tobacco tax on household welfare in Ukraine. It considers three price-elasticity scenarios among income deciles of the population. Results show that although tobacco taxes are often criticized for being regressive in the short-run, a more comprehensive scenario that includes medical expenses and working years, the benefits of tobacco taxes far exceed the increase in tax liability, benefitting in large measure lower income households. Our results also indicate that lower health expenditure seems to be the main driver because of the reduction in tobacco-related diseases that require expensive treatments. Tobacco taxes are also associated with positive distributional effects related to the higher long-term price elasticities of tobacco consumption.