Effectiveness of tax policy changes in Montenegro: smoking behaviour by socio-economic status

Affordability of cigarettes in ten Southeastern European countries between 2008 and 2019

BACKGROUND

The empirical evidence shows that tobacco consumption is strongly associated with its affordability. The nominal growth in tobacco prices imposed by taxation should exceed or at least keep pace with nominal income growth, ensuring that tobacco products become less affordable over time. No analysis covering affordability issues in the Southeastern European (SEE) region has been conducted prior to this research.

OBJECTIVES

The study aims to examine trends in cigarette affordability in ten selected SEE countries over the period 2008-2019 and the impact of affordability on the consumption of cigarettes. On the policy side, it aims to support conducting of more effective evidence-based policy of tobacco taxation.

METHODS

The relative income price of cigarettes and the tobacco affordability index are used as affordability measures. The panel regression was run to estimate the impact of affordability measures and other covariates on cigarette consumption.

RESULTS

The affordability of cigarettes in the selected SEE countries has decreased on average but showed different patterns over the observed period. A decline in affordability has been more dynamic in Western Balkan (non-EU members) countries and low-and-middle-income countries within the SEE region. Econometric estimation confirms affordability as the main determinant of tobacco consumption, indicating that a decline in affordability considerably reduces tobacco consumption.

CONCLUSIONS

Despite the evidence, affordability is still widely ignored by SEE policymakers when designing national tobacco taxation policies. Policymakers should be aware of the risk that future increases in cigarette prices could lag behind real income growth, making tax policy less effective at reducing consumption. Reducing affordability should be the paramount consideration in designing effective tobacco taxation policies.

Socioeconomic differences in the impact of prices and taxes on tobacco use in low- and middle-income countries-A systematic review

There is indisputable evidence that increases in taxes that raise tobacco prices reduce tobacco use. Consumption taxes on manufactured tobacco products, however, can be regressive in socioeconomic status (e.g., when the ratio of tax paid to income is lower for higher-income groups than for lower-income groups). Nevertheless, if the poor or less educated are more price responsive, a change in tobacco tax may be progressive in socioeconomic status. Existing reviews clearly indicate that populations with lower income or education are more responsive to tobacco tax and price changes than higher-income and more educated populations in high-income countries. Research pertaining to low- and middle-income countries was, however, limited and inconclusive. We conducted a review of quantitative studies that examined if socioeconomic status modified the association between prices and taxes and tobacco use in low- and middle-income countries. We searched two electronic databases, two search engines, and two working paper repositories. At least two reviewers independently screened articles for inclusion, extracted detailed characteristics, and assessed the risk of bias of each included study. Thirty-two studies met our inclusion criteria. Overall, we found that the evidence in low- and middle-income countries was too limited and methodologically weak to make any conclusive statements. Our review highlights a number of data and methodological limitations in existing studies. The most important limitation was the lack of formal assessment of socioeconomic differences in price responsiveness. Only seven of 32 studies assessed statistically whether own-price effects were modified by socioeconomic status. Many modelling studies have examined the distributional effect of a tax increase on tobacco use, while assuming a strong own-price elasticity gradient in income. The poor were generally assumed to be more responsive to price by a factor of two to five, relative to the wealthy. Although there are theoretical reasons to expect poorer individuals to be more responsive to monetary prices than wealthy ones in low- and middle-income countries, our review provides little empirical support.