This paper investigates the impact of increasing the tobacco taxes on the poverty rate in Mexico. Unlike most LMIC countries, the prevalence of smoking in Mexico is higher among the well-off than among the poor. Yet, tobacco tax rates in Mexico are lower than those in most LMIC countries. There is room, thus, to implement tax reforms and compensating policies to mitigate their impact on the poor. Our analysis is based on the stochastic dominance approach. More precisely, several tax reforms are analyzed through the so-called Consumption Dominance curves. In addition, the reforms are assumed to be revenue neutral and to give rise to compensating subsidies on specific goods. Our results show that if the Mexican government were to implement a WHO-type reform, poverty among households with at least one smoking member would increase by 2.6 % points. Yet, the deleterious effects are entirely mitigated by price subsidies on staple foods. Supplementary Information The online version of this article (10.1007/s43546-021-00141-x) contains supplementary material, which is available to authorized users.

ObjectiveEffects of tobacco taxation on employment in Mexico are measured by using an applied general equilibrium model.MethodsThe 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.ResultsSetting 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.ConclusionResults 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.

This research provides a detailed examination of the redistributive effect achieved by the tax system including total taxes and cash transfers targeting the contributors and households in the period 2002-2008-2014 for the Mexican regions and the country. We measure the impact on income growth through the tax system according to each fiscal rules for the corresponding years using pre and post fiscal conditions. We answer the next question: considering the economic growth on per capita incomes in the Mexican states, will the impact of the Mexican tax system improve income distribution? That is, by all means pro-poor? Our methodology allows to detect if taxes and benefits can really induce an improvement of income growth on the regions captured by its wellbeing and economic growth conditions. We outlined relevant theoretical issues on public fiscal policies concerning this work and lastly, we proceed with an empirical application to develop some recommendations for the Mexican fiscal policy system.

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