Quasi-experimental evidence on tobacco tax regressivity

Abstract

Tobacco taxes are known to reduce tobacco consumption and to be regressive, such that tobacco control policy may have the perverse effect of further harming the poor. However, if tobacco consumption falls faster amongst the poor than the rich, tobacco control policy can actually be progressive. We take advantage of persistent and committed tobacco control activities in South Africa to examine the household tobacco expenditure burden. For the analysis, we make use of two South African Income and Expenditure Surveys (2005/06 and 2010/11) that span a series of such tax increases and have been matched across the years, yielding 7806 matched pairs of tobacco consuming households and 4909 matched pairs of cigarette consuming households. By matching households across the surveys, we are able to examine both the regressivity of the household tobacco burden, and any change in that regressivity, and since tobacco taxes have been a consistent component of tobacco prices, our results also relate to the regressivity of tobacco taxes. Like previous research into cigarette and tobacco expenditures, we find that the tobacco burden is regressive; thus, so are tobacco taxes. However, we find that over the five-year period considered, the tobacco burden has decreased, and, most importantly, falls less heavily on the poor. Thus, the tobacco burden and the tobacco tax is less regressive in 2010/11 than in 2005/06. Thus, increased tobacco taxes can, in at least some circumstances, reduce the financial burden that tobacco places on households.

Moral dilemma in deciding on the amount of excise tax on tobacco products in the Czech Republic

“…Tobacco tax evasion undermines the goal of tobacco taxes as a measure of tobacco consumption control concerning lower affordability of tobacco products increased health risks for smokers, and reduced government revenue (Vladisavljevic, Zubovic, Jovanovic, et al, 2022). Koch (2018) argues that tobacco taxes reduce tobacco consumption and are regressive.…”

Tax research in South Africa

“…The authors find that such a sugar tax could significantly lower obesity and related illnesses. Koch (2018) argues that tobacco taxes are sin taxes that are intended to reduce tobacco consumption and to be regressive. However, such tobacco control policies might have the adverse effect of further harming the poor.…”

“…If, however, the consumption of tobacco decreases to a greater extent amongst the poor than the rich, then tobacco control policies may prove to be progressive, when health effects are taken into account. Koch (2018) analysed two income and expenditure surveys (IES) for 2005/06 and 2010/11, which covered years of tax increases. The analysis matched 7,806 pairs of households where tobacco was consumed and 4,909 pairs of households where cigarettes were consumed.…”