Identifying effective tax policies to reduce cigarette consumption: Cross country empirical evidence
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Campaign for Tobacco Free Kids, Washington, United States
The Ohio State University Wexner Medical Center, Columbus, United States
Faculty of Economics and Business, University of Indonesia, Depok, Indonesia
Publication date: 2022-07-05
Tob. Prev. Cessation 2022;8(Supplement):A82
Increasing cigarette prices with tax and price policies is the most effective way to reduce consumption.

To evaluate the effectiveness of several aspect of tax systems, simultaneously and independently, to reduce cigarette demand over time and between 160 countries.

We construct tax system scores using the methodology developed by Tobacconomics, University of Chicago, with additional error corrections. The scoring system is based on 5 criteria (ranging from 0 to 5) including cigarette prices, affordability changes, tax burden, and tax system design. Higher scores represent stronger systems. The overall score is the average of the sub-scores. We use alternatively the levels and the resulting tax scores to estimate their impacts on cigarette demand. To do this we collect a biennial database of aspects of tobacco tax systems and rates from 2008 to 2020 across 160 countries, obtained from the WHO. We then use a two-way fixed effect model to estimate the impact of scores and tax and price measures on two margins of demand, cigarette prevalence among adults aged ≥15 years and sales volumes.

Most tax systems sub-scores significantly reduce independently the prevalence of adult cigarette smoking. A higher tax score by 1 unit reduces prevalence of smoking by about 0.55 percentage points (pp). The overall score is the most effective at reducing prevalence. Price and tax burden sub-scores significantly reduce cigarette sales volumes. A higher tax burden score by 1 unit reduces cigarette sales by -0.6 percent. Tax share scores are also the most effective at reducing cigarette sales. Prices scores or tax share scores are more effective at reducing prevalence if combined with strong tax systems. An improvement in price (tax) score increases the effectiveness of the overall tax system score to reduce prevalence and sales.

All tax systems scores are very effective at reducing cigarette demand. A one point increase in scores leads to a -0.3 to -0.8 pp reduction in smoking prevalence and a -2% to -7% reduction in sales volume. Price increases are much more effective at reducing sales when combined with increases in tax shares than price increases alone.