Publication: Are Tobacco Taxes Really Regressive?: Evidence from Chile
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2017-01-04
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2017-01-04
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Tobacco taxes are deemed regressive as poorest families tend to allocate larger shares of their budget to purchase tobacco. However, as taxes also discourage tobacco use, some of the most adverse effects, including higher medical expenses, lower life expectancy at birth, added years of disability among smokers, and reductions in the quality of life, among other, will be reduced. This paper describes and simulates the effects of the tobacco tax on incomes in Chile assuming three different price-elasticity scenarios for different income deciles of the population. Results show that although price increase for tobacco through higher taxes generates negative income variations across all groups in a population, under a more comprehensive scenario that includes benefits through lower medical expenses and an increase in working years, the results invert, and the overall monetary effect of the taxation policy becomes positive. Moreover, the reduction in medical expenses seems to be the main driver of the increase in net incomes because of the reduction in tobacco-related problems that require expensive treatments. Lastly, as the distributional effects of tobacco taxes are directly related to the long-term price elasticities of tobacco consumption, it will be advisable a coordination between taxation and behavioral change policies across income groups.
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“Fuchs, Alan; Meneses, Francisco. 2017. Are Tobacco Taxes Really Regressive?: Evidence from Chile. © World Bank. http://hdl.handle.net/10986/25969 License: CC BY 3.0 IGO.”
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Publication Are Tobacco Taxes Really Regressive?(World Bank, Washington, DC, 2017-03)Tobacco taxes are deemed regressive, because the poorest families tend to allocate larger shares of their budget to purchase tobacco. However, as taxes also discourage tobacco use, some of the most adverse effects, including higher medical expenses, lower life expectancy at birth, added years of disability among smokers, and reduction in the quality of life, among others, would be reduced. This paper describes and simulates the effects of the tobacco tax on incomes in Chile assuming three different price-elasticity scenarios for different income deciles of the population. The results show that although increasing the price of tobacco through higher taxes generates negative income variations across all groups in a population, under a more comprehensive scenario that includes benefits through lower medical expenses and an increase in working years, the results invert, and the overall monetary effect of the taxation policy becomes positive. Moreover, the reduction in medical expenses seems to be the main driver of the increase in net incomes, because of the reduction in tobacco-related problems that require expensive treatments. Lastly, as the distributional effects of tobacco taxes are directly related to the long-term price elasticities of tobacco consumption, it would be advisable to coordinate taxation and behavioral change policies across income groups.Publication Tobacco Price Elasticity and Tax Progressivity in Moldova(World Bank, Washington, DC, 2018-02)Tobacco-use–related diseases are the main cause of mortality in Moldova, where tobacco consumption is widely spread, especially among men. In addition to health concerns, tobacco consumption has economic consequences, as households spend substantial resources on tobacco and related out-of-pocket medical costs. Tobacco tax increases are one of the most effective measures to reduce tobacco consumption, but are usually believed to be regressive, taxing the poor proportionally more than the rich. This paper estimates the tobacco price elasticity of demand for Moldova by income decile and undertakes an extended cost-benefit analysis to estimate the distributional effect of a rise in tobacco taxes on income distribution. The paper's main findings are that a tobacco price increase would generate a rise in expenditure deriving from direct tobacco price increases, but would reduce the costs of out-of-pocket medical expenses. Based on these two factors, the net effect of a tobacco tax increase would be progressive in the analyzed cases, ultimately benefitting the incomes of the lower-income groups in the population.Publication Regressive or Progressive?(World Bank, Washington, DC, 2017-10)Tobacco taxes are usually considered regressive, as the poorest individuals allocate larger shares of their budget toward 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. The results show that although tobacco taxes are often criticized for being regressive in the short run, in 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. The 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.Publication Regressive or Progressive?(World Bank, Washington, DC, 2017-09-27)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.Publication Tobacco Price Elasticity and Tax Progressivity in Moldova(World Bank, Washington, DC, 2018-01)The study estimates the tobacco price elasticity of demand for the population of Moldova, and the price elasticity for 10 income groups is obtained. This appears to be the first tobacco price elasticity estimation for income groups in Moldova. The study undertakes an extended cost-benefit analysis to estimate the distributional effect of a rise in tobacco taxes on income distribution. As inputs, it uses tobacco price elasticity, mortality attributed to tobacco, and the medical costs of tobacco-attributed diseases.
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