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

dc.contributor.author Fuchs Tarlovsky, Alan
dc.contributor.author Gonzalez Icaza, Fernanda
dc.date.accessioned 2019-07-11T16:54:18Z
dc.date.available 2019-07-11T16:54:18Z
dc.date.issued 2019-06
dc.description.abstract This 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.identifier http://documents.worldbank.org/curated/en/758391561477648302/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam
dc.identifier.uri http://hdl.handle.net/10986/32062
dc.language English
dc.publisher World Bank, Washington, DC
dc.rights CC BY 3.0 IGO
dc.rights.holder World Bank
dc.rights.uri http://creativecommons.org/licenses/by/3.0/igo
dc.subject TOBACCO TAX
dc.subject TOBACCO CONSUMPTION
dc.subject DISTRIBUTIONAL IMPACT
dc.subject PRICE ELASTICITY OF DEMAND
dc.subject COST-BENEFIT ANALYSIS
dc.subject TAXATION
dc.title The Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnam en
dc.type Report en
dc.type Rapport fr
dc.type Informe es
dspace.entity.type Publication
okr.crossref.title The Welfare and Distributional Effects of Increasing Taxes on Tobacco in Vietnam
okr.date.disclosure 2019-06-25
okr.doctype Economic & Sector Work :: Other Health Study
okr.doctype Economic & Sector Work
okr.docurl http://documents.worldbank.org/curated/en/758391561477648302/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam
okr.identifier.doi 10.1596/32062
okr.identifier.externaldocumentum 090224b086e15294_1_0
okr.identifier.internaldocumentum 31194535
okr.identifier.report 138316
okr.imported true en
okr.language.supported en
okr.pdfurl http://documents.worldbank.org/curated/en/758391561477648302/pdf/The-Welfare-and-Distributional-Effects-of-Increasing-Taxes-on-Tobacco-in-Vietnam.pdf en
okr.region.administrative East Asia and Pacific
okr.region.country Viet Nam
okr.theme Economic management :: Economic statistics, modeling and forecasting
okr.topic Health, Nutrition and Population :: Tobacco Use and Control
okr.topic Macroeconomics and Economic Growth :: Taxation & Subsidies
okr.topic Poverty Reduction :: Inequality
okr.unit HNP EAP Region (GHN02)
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