Publication: Are Tobacco Taxes Really Regressive?: Evidence from Chile
Date
2017-01-04
ISSN
Published
2017-01-04
Author(s)
Fuchs, Alan
Meneses, Francisco
Abstract
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.
Citation
“Fuchs, Alan; Meneses, Francisco. 2017. Are Tobacco Taxes Really Regressive?; Are Tobacco Taxes Really Regressive? : Evidence from Chile. © World Bank, Washington, DC. http://openknowledge.worldbank.org/handle/10986/25969 License: CC BY 3.0 IGO.”