Distributional Effects of Tobacco Taxation : A Comparative Analysis
Tobacco taxes have positive impacts on health outcomes. However, policy makers often hesitate to use them because of the perception that poorer households are affected disproportionally more than richer households. This study compares the simulated...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/899011554727317064/Distributional-Effects-of-Tobacco-Taxation-A-Comparative-Analysis http://hdl.handle.net/10986/31534 |
| Summary: | Tobacco taxes have positive impacts on
health outcomes. However, policy makers often hesitate to
use them because of the perception that poorer households
are affected disproportionally more than richer households.
This study compares the simulated distributional effects of
tobacco tax increases in eight low- and middle-income
countries. It applies a standardized extended cost-benefit
analysis methodology and relies on comparable data sources
across countries. The net effect of raising taxes on
cigarettes encompasses the direct negative price shock to
household budgets and the long-term benefits of improved
health outcomes. The distributional incidence is assessed by
estimating decile-specific behavioral responses and relative
income gains. The comparative results do not support the
claim that tobacco taxes are necessarily regressive.
Although welfare losses from the first-order price shock
disproportionally affect the poor, these negative shocks are
attenuated by greater price-responsiveness among
lower-income groups and further offset by higher long-term
relative gains through reduced medical expenditures and
additional years of productive life as taxes dissuade
smoking. In several countries, increasing the price of
cigarettes is pro-poor and welfare improving for a large
share of the population. Along with raising taxes, policy
should aim at encouraging responsiveness to price changes
and target tobacco-related medical expenses that
disproportionally burden the poor. |
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