Publication:
The Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnam

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dc.contributor.authorFuchs Tarlovsky, Alan
dc.contributor.authorGonzalez Icaza, Fernanda
dc.date.accessioned2019-07-11T16:54:18Z
dc.date.available2019-07-11T16:54:18Z
dc.date.issued2019-06
dc.description.abstractThis paper assesses the welfare and distributional effects of raising taxes on tobaccoin Vietnam. Tobacco taxes are recognized as effective policy tools to reduce tobaccoconsumption and to improve health outcomes. However, policy makers often hesitateto use them because of claims of their potentially regressive effects. According to thoseclaims, poorer households are particularly hurt by tobacco tax policies, as cigarettepurchases represent a larger share of their budgets relative to higher-income smokers.The paper argues that the claims on the regressive effects of tobacco tax policies arebased on naive, shortsighted, and incorrect estimations. Tobacco-related illnessesdamage health outcomes and the quality of the lives of smokers and their families, whilethey also cost billions of dollars in medical expenditures and losses in human capital andproductivity every year. Tobacco consumption imposes heavy economic burdens onhouseholds and governments, in addition to its well-known negative health and socialimpacts. Raising taxes on cigarettes dissuades consumption, hence improving healthoutcomes, adverting premature deaths, and reducing direct and indirect economic costs.The analysis applies the Extended Cost Benefit Analysis (ECBA) methodology to simulateempirically the costs, as well as the benefits of increasing the prices on cigarettes onthe welfare of Vietnamese households. Following a well-established body of literature,the ECBA acknowledges that there may be short-term direct negative effects of raisingprices on tobacco, as smokers can struggle to continue to purchase tobacco with theirunchanged household budgets. However, the model also incorporates two of the mainbenefits of reducing tobacco consumption by increasing taxes: (a) the reduction insmoking-related medical expenses borne by households and (b) the additional incomesthat households can earn by preventing years of productive life lost due to smoking attributablepremature deaths. A critical contribution of the ECBA is to incorporate decile-specific price elasticities of demand for cigarettes, to quantify the behavioral responses or sensitivity of smokers in different income groups to changes in cigarette prices. To the knowledge of the authors, this is the first available empirical exercise to estimate price elasticities by income decile in Vietnam. Consistent with the literature and with empirical findings in other countries, the price elasticities of demand for cigarettes are larger for lower-income households. Lower income smokers are likely to reduce their tobacco consumption more drastically, when faced with a price increase. The ultimate distributional effect on welfare of the increasein the price of cigarettes due to tax increases will then depend on assessing the potentialbenefits against the short-term costs.en
dc.identifierhttp://documents.worldbank.org/curated/en/758391561477648302/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam
dc.identifier.doi10.1596/32062
dc.identifier.urihttps://hdl.handle.net/10986/32062
dc.languageEnglish
dc.publisherWorld Bank, Washington, DC
dc.rightsCC BY 3.0 IGO
dc.rights.holderWorld Bank
dc.rights.urihttp://creativecommons.org/licenses/by/3.0/igo
dc.subjectTOBACCO TAX
dc.subjectTOBACCO CONSUMPTION
dc.subjectDISTRIBUTIONAL IMPACT
dc.subjectPRICE ELASTICITY OF DEMAND
dc.subjectCOST-BENEFIT ANALYSIS
dc.subjectTAXATION
dc.titleThe Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnamen
dc.typeReporten
dc.typeRapportfr
dc.typeInformees
dspace.entity.typePublication
okr.crossref.titleThe Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnam
okr.date.disclosure2019-06-25
okr.doctypeEconomic & Sector Work::Other Health Study
okr.doctypeEconomic & Sector Work
okr.docurlhttp://documents.worldbank.org/curated/en/758391561477648302/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam
okr.guid758391561477648302
okr.identifier.doi10.1596/32062
okr.identifier.externaldocumentum090224b086e15294_1_0
okr.identifier.internaldocumentum31194535
okr.identifier.report138316
okr.importedtrueen
okr.language.supporteden
okr.pdfurlhttp://documents.worldbank.org/curated/en/758391561477648302/pdf/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam.pdfen
okr.region.administrativeEast Asia and Pacific
okr.region.countryViet Nam
okr.themeEconomic management :: Economic statistics, modeling and forecasting
okr.topicHealth, Nutrition and Population::Tobacco Use and Control
okr.topicMacroeconomics and Economic Growth::Taxation & Subsidies
okr.topicPoverty Reduction::Inequality
okr.unitHNP EAP Region (GHN02)
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