Inequality-Reducing Effects of Tobacco Tax Increase: Accounting for Behavioral Response of Low-, Middle-, and High-Income Households in Serbia

Vladisavljević, Marko and Zubović, Jovan and Đukić, Mihajlo and Jovanović, Olivera (2021) Inequality-Reducing Effects of Tobacco Tax Increase: Accounting for Behavioral Response of Low-, Middle-, and High-Income Households in Serbia. International journal of environmental research and public health, 18 (18). ISSN 1660-4601

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Abstract

While previous research has indicated that increasing tobacco excises is a crucial instrument
for lowering tobacco demand, this policy has been criticized for its alleged regressive impact on
the poor. However, this critique does not take into account the behavioral response, i.e., decrease
in consumption that occurs after excises and prices increase. In this paper, we examine the effect
of cigarettes’ price increase on tobacco consumption, household expenditures, and tax burdens in
three income groups and provide empirical arguments on the regressivity/progressivity effects
of tobacco tax increase. Estimated elasticities indicate that all groups decrease their cigarettes
demand with increasing prices, with demand decrease stronger for low- than for middle- and high�income households. Results further suggest that increasing tobacco excises (1) decreases tobacco
expenditure of low-income households, which increases their productive consumption, such as on
food, clothes, etc., and (2) redistributes the tobacco tax burden from low- to high-income households.
Therefore, excise increase policies do not have an adverse effect on the position of the low-income
households; on the contrary, they lower their cigarettes expenditure and their tax burden, while
lower cigarettes consumption has an additional, positive effect on their health, which attenuates
future inequalities.

Item Type:	Article
Additional Information:	COBISS.ID=45678857
Uncontrolled Keywords:	tobacco excises, price elasticity, tax progressivity, inequality, fiscal revenues
Research Department:	Welfare Economics
Depositing User:	Jelena Banovic
Date Deposited:	09 Sep 2021 09:40
Last Modified:	09 Sep 2021 09:40
URI:	http://35.240.28.64/id/eprint/1633
Author Links:	[error in script] No links available.

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