Are Tobacco Taxes Really Regressive? : Evidence from Chile
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...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2017
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/919121488376958052/Are-tobacco-taxes-really-regressive-evidence-from-Chile http://hdl.handle.net/10986/26238 |
| Summary: | 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. |
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