In What Measure Is Public Finance Sustainability Threatened by Illicit Tobacco Trade: The Case of Western Balkan Countries

Abstract

The aim of this paper is to gain new knowledge about illicit tobacco trade in Western Balkan countries and its effects on public finance sustainability. It includes an estimation of the volume of illicit tobacco trade, identifying and quantifying the key factors that cause illegal tobacco trade, the effects of illegal tobacco trade on public finance sustainability, and the effects on the intensity of total tobacco trade. An empirical analysis was conducted using the data collected by field research on consumer preferences in tobacco products in Western Balkan countries (Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, Serbia, and Slovenia). The reference research period is the year 2018. The results obtained show a high variability of volume of illicit tobacco trade in Western Balkan countries. While more than 20% of tobacco products in Montenegro and Bosnia and Herzegovina are bought on the gray market, a share of illicit tobacco trade lower than 5% is found in Slovenia and Macedonia. Underdeveloped institutional framework fighting against illicit trade and weak rule of law, coupled with the heavy taxation of tobacco products, are the key factors behind a higher intensity of illicit trade in comparison to more developed European Union (EU) economies. Illicit tobacco trade negatively affects the stability of public finance of Western Balkan economies and reduces the level of public service. It is especially important for the health system combating the negative consequences of smoking. Regular and illicit tobacco trade amongst Western Balkan countries is found to flow in opposite directions.

Tobacco tax evasion in Western Balkan countries: tax evasion prevalence and evasion determinants

“…First, all six WB countries have a relatively high prevalence of tobacco use. 11 Taking into account experiences from other European countries-the latest European Union (EU) member states in particular-it is expected that raising taxes as a part of tobacco control reform will be attacked by opponents of tobacco taxes as an ineffective and harmful policy measure that stimulates tax evasion and reduces fiscal revenues, 12 as it was the case prior to adoption of the EU Tobacco Products Directive (2014/40/EU).…”

Investigation of the technological profile of illegally distributed tobacco derivatives and smoking products

“…On the other hand, the analysis of consumer attitudes in the same region revealed good public awareness about the negative aspects of the grey tobacco market. The higher levels of illicit trade in Western Balkan countries compared to the more developed EU members are believed to be a consequence of underdeveloped institutional frameworks, suspended rule of law and heavy taxation of tobacco products [10]. According to a report, which analyzes the economic and other effects of the illegal market of roll-your-own tobacco in Bulgaria in the period 2007-2017, there is a startling dominance of the illicit trade, being about 75% of the RYO tobacco market in the country [11].…”

“…The multidimensional negative effects and the factors influencing the unregulated trade in tobacco, as one of the greatest contemporary global challenges, are the subject of serious research interest [4,[8][9][10][13][14][15][16][17][18][19].…”