Impact of a recent tobacco tax reform in Argentina

On the impacts of higher tobacco taxes in Argentina: a computable general equilibrium approach

OBJECTIVES

We analyse the employment effects of increasing tobacco taxation in Argentina by building a computable general equilibrium (CGE) model.

METHODS

In line with recent changes in tobacco taxation in the country, the CGE model simulates an increase in excise tax on cigarettes.

RESULTS

The results show that even a substantial increase in tobacco taxation induces a zero-net change in overall employment in the economy when the newly raised tax revenues are spent by the government on education, health or public infrastructure. Increased tobacco taxes may shift jobs from tobacco-related sectors to other sectors of the economy, but the overall impact on the total number of jobs is negligible.

CONCLUSIONS

The widely documented positive effects of higher tobacco taxes (including a healthier population, more productive workers, savings from avoided costs of medical treatment for tobacco-related diseases, reductions in the number of new young smokers, among others) would far outweigh the nearly null effect of higher taxes on total net employment.

Cross-country and panel data estimates of the price elasticity of demand for cigarettes in Europe

OBJECTIVE

Our goal is to provide estimates of the price elasticity of demand for cigarettes in Europe as a basis for public health policy on tobacco taxation.

METHODS

We use secondary data on cigarette retail sales including illicit trade, prices, tobacco control measures and income from 2010 to 2020 of 27 European countries from Euromonitor, the WHO, the Tobacco Control Scale and the World Bank. We estimate the price elasticity of demand using instrumental variable regressions as well as panel data regressions taking into account that prices and quantities are determined simultaneously in the market.

RESULTS

Based on cross-section data at the country level, we find that during the decade from 2010 to 2020, the demand for cigarettes in Europe has become neither more nor less elastic. Our estimates of the price elasticity based on panel data are around -0.4 (95% CI -0.67 to -0.24), in line with previous estimates for high-income countries. Furthermore, our analysis shows that estimates of the price elasticity of demand that are based on data including illicit trade tend to be lower. This has also been found in the previous literature.

CONCLUSIONS

By providing state-of-the-art, up-to-date estimates of the price elasticity of demand that are in line with the previous literature, we show that taxation can still be a cost-effective tobacco policy to reduce cigarette consumption and thus, the burden of smoking.

Tobacco industry in Mexico: a general equilibrium analysis

OBJECTIVE

Effects of tobacco taxation on employment in Mexico are measured by using an applied general equilibrium model.

METHODS

The study describes the modelling methodology based on a 2013 social accounting matrix for Mexico, built for analysing the impact of tobacco taxation on employment. Unemployment is treated as an endogenous variable.

RESULTS

Setting the specific component of the Excise Tax on Production and Services (IEPS) at 1.50 pesos per cigarette would lead to the loss of tobacco-related jobs constituting just 0.1% of all jobs nationally. Revenue from IEPS on tobacco would increase by 49%, while consumption would fall by 26%. This minimal loss of employment can be compensated for if the government invests revenue from IEPS on tobacco in some specific sectors. We show this for the case of the health sector. Far from just reducing cigarette consumption, this tax reform would also create 33 781 jobs with a net gain of 32 285 across different sectors of the economy while only reducing 727 jobs in the tobacco industry in the whole country.

CONCLUSION

Results suggest the existence of a good margin for increasing tobacco tax beyond the 2020 update of 0.49 pesos per stick. In addition, from a public health point of view, if tobacco tax revenue were allocated as a direct healthcare subsidy this would deliver a double dividend by further discouraging consumption and increasing tobacco tax revenue by almost 50%, with little impact on key macroeconomic variables in Mexico, which could be offset in more dynamic sectors while promoting health, employment and development.

Differential price responses for tobacco consumption: implications for tax incidence

Increasing tobacco taxes is considered the most effective an cost-effective policy to reduce tobacco consumption. However, a common objection to tobacco taxes is that they tend to rely disproportionately on the poorest individuals since less affluent smokers incur proportionately greater expenditures on cigarettes compared with more affluent smokers. Such objections usually assume that all smokers throughout the income distribution react similarly to an increase in tobacco prices. But, if less affluent smokers are more sensitive to price changes (ie, they have a higher demand price elasticity), reductions in tobacco consumption should be higher at the bottom of the income distribution. This paper uses data from Argentina's Household Expenditure Survey to estimate demand price elasticities for tobacco by income and age groups. Results indicate that less affluent smokers present higher demand price elasticities for cigarettes than more affluent ones. A 10% increase in cigarette prices would decrease consumption by 8.5% (4.4%) for the poorest (richest) smokers. In addition, young people are the most elastic group. These differential elasticities have relevant implications in terms of the distributional incidence of increasing tobacco taxes. As less well-off individuals reduce consumption relatively more, they bear a relatively lower tax burden. Thus, tobacco tax increases may not be regressive as is often believed. As a whole, this paper provides policymakers with relevant arguments for policy discussion and the public debate on common objections to increasing tobacco taxes.