Is Tobacco Taxation Regressive? Evidence on Public Health, Domestic Resource Mobilization, and Equity Improvements
Tobacco taxes are recognized as an effective policy tool to reduce tobacco consumption and improve health outcomes; however, policy makers often hesitate to use them because of their possible regressive effects. This report assesses the ability of...
| Main Authors: | , , , |
|---|---|
| Format: | Policy Note |
| Language: | English |
| Published: |
World Bank, Washington, DC
2019
|
| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/893811554737147697/Is-Tobacco-Taxation-Regressive-Evidence-on-Public-Health-Domestic-Resource-Mobilization-and-Equity-Improvements http://hdl.handle.net/10986/31575 |
| Summary: | Tobacco taxes are recognized as an
effective policy tool to reduce tobacco consumption and
improve health outcomes; however, policy makers often
hesitate to use them because of their possible regressive
effects. This report assesses the ability of taxes on
tobacco to improve future health and welfare outcomes, with
a focus on their distributional impact and effects on the
poor. In addition to adverse consequences on health and
quality of life of smokers and their family members,
tobacco-related illnesses cost billions of dollars in
medical expenditures and losses in human capital and
productivity, imposing heavy economic tolls on households
and governments. Developing countries bear a high and
increasing share of the economic burden of tobacco. However,
traditional analyses often overlook the many economic
benefits of reducing tobacco consumption. This report
presents empirical findings using an extended cost benefit
analysis (ECBA) methodology, to incorporate a more
comprehensive view of the costs and benefits of increasing
prices of tobacco on household welfare, and to assess their
distributional impact by accounting for different consumer
behaviors across income groups. Evidence for several
countries shows that large price shocks on cigarettes can
generate progressive and welfare-improving medium and
long-term net impacts, that particularly improve welfare of
lower-income households. Large shares of societies—and
particularly the poor—can benefit from positive income gains
by reducing tobacco-related medical expenses and avoiding
premature deaths. Moreover, additional fiscal revenues
generated may be used to further enhance measures to control
tobacco and promote equity. Ultimately, the benefits and
distributional impact of raising taxes on tobacco will
depend on the ability of policy to understand and to
leverage consumers' responses toward quitting tobacco,
and to target comprehensive interventions to help the most
vulnerable groups. |
|---|