Differential price responses for tobacco consumption: implications for tax incidence

CRUCES, GUILLERMO; FALCONE, GUILLERMO ENRIQUE; PUIG, JORGE

TOBACCO CONTROL

B M J PUBLISHING GROUP

Año: 2022

0964-4563

Increasing tobacco taxes is considered the mosteffective an cost-effective policy to reduce tobaccoconsumption. However, a common objection to tobaccotaxes is that they tend to rely disproportionately on thepoorest individuals since less affluent smokers incurproportionately greater expenditures on cigarettescompared with more affluent smokers. Such objectionsusually assume that all smokers throughout the incomedistribution react similarly to an increase in tobaccoprices. But, if less affluent smokers are more sensitiveto price changes (ie, they have a higher demand priceelasticity), reductions in tobacco consumption shouldbe higher at the bottom of the income distribution.This paper uses data from Argentina?s HouseholdExpenditure Survey to estimate demand price elasticitiesfor tobacco by income and age groups. Results indicatethat less affluent smokers present higher demand priceelasticities for cigarettes than more affluent ones. A 10%increase in cigarette prices would decrease consumptionby 8.5% (4.4%) for the poorest (richest) smokers. Inaddition, young people are the most elastic group.These differential elasticities have relevant implicationsin terms of the distributional incidence of increasingtobacco taxes. As less well-off individuals reduceconsumption relatively more, they bear a relatively lowertax burden. Thus, tobacco tax increases may not beregressive as is often believed. As a whole, this paperprovides policymakers with relevant arguments for policydiscussion and the public debate on common objectionsto increasing tobacco taxes.