Taxing Tobacco in Georgia : Welfare and Distributional Gains of Smoking Cessation
This paper analyzes the welfare and distributional impacts of increasing taxes on cigarettes in Georgia. Increasing taxes on tobacco is an effective measure to reduce smoking. According to some estimates, increasing tobacco taxes could save more th...
| Main Authors: | , |
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| Format: | Working Paper |
| Language: | English |
| Published: |
World Bank, Washington, DC
2020
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/752631580310103282/Taxing-Tobacco-in-Georgia-Welfare-and-Distributional-Gains-of-Smoking-Cessation http://hdl.handle.net/10986/33266 |
| Summary: | This paper analyzes the welfare and
distributional impacts of increasing taxes on cigarettes in
Georgia. Increasing taxes on tobacco is an effective measure
to reduce smoking. According to some estimates, increasing
tobacco taxes could save more than GEL 3.6 billion and 53
thousand lives over a 15-year period. However, concerns over
potentially regressive effects on the poor are often raised.
An Extended Cost Benefit Analysis (ECBA) is applied to
simulate the welfare and distributional impacts of raising
prices on cigarettes. Decile-specific price elasticities of
demand are estimated to account for heterogenous behavioral
responses of different income groups. Empirical estimations
confirm that poorer households in Georgia tend to reduce
consumption more intensely when faced with higher tobacco
prices. The estimated magnitude and distribution of
elasticities are comparable to peer countries. The
simulations based on household survey data suggest that the
long-term net distributional effects of increasing taxes on
cigarettes in Georgia are likely progressive. Incorporating
the indirect benefits of reduced smoking -- reductions in
medical expenses and earnings from adverted premature deaths
-- could bring small, albeit positive, income gains for
large sectors of the population. The magnitude of those
benefits is most significant among lower-income households,
potentially contributing to lift them out of poverty. |
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