The Distributional Effects of Tobacco Taxation: The Evidence of White and Clove Cigarettes in Indonesia

Tarlovsky, Alan Fuchs; Hasbun, Giselle Eugenia Del Carmen

doi:10.1596/1813-9450-8558

Cited by 2 publications

(2 citation statements)

References 26 publications

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“…76 At least 13 country studies where the ECBA has been implemented highlight that the medium-and long-term benefits of reducing smoking can outweigh the short-term tax spending, resulting in net gains, particularly among poorer households. [77][78][79][80][81][82][83][84][85][86] Similar findings are reached by Fuchs, Paz and Gonzalez Icaza, who simulate tax policy changes in eight low-, middle-and high-income countries. 87 The distribution of elasticities and resultant health and economic benefits from reduced medical expenses and lower years of working-life lost (YWLL) generally more than offset the short-term negative effects of tobacco taxes on household budgets.…”

Section: Regressivity Of Taxessupporting

confidence: 65%

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

Paraje,

Jha,

Savedoff

et al. 2023

BMJ Glob Health

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The article reviews the large body of evidence on how taxation affects the consumption of tobacco, alcohol, and sugar-sweetened beverages (SSB). There is abundant evidence that demand for tobacco, alcohol, and SSB is price-responsive and that tax changes are quickly passed on to consumers. This suggests that taxes can be highly effective in changing consumption and reducing the burden of diseases associated with consuming these products. Tobacco, alcohol, and SSB industries oppose taxation on similar grounds, mostly on the regressivity of taxes since regressive taxes take a larger percentage of income from low income earners than from middle and high income earners; but also on the effects taxes might have on employment and economic activity; and, in the case of tobacco, the effects taxation has on illicit trade.Contrary to industry arguments, evidence shows that taxation may have short-term negative financial consequences for low-income households. However, medium and long-term financial benefits from reduced healthcare costs, better health, and welfare largely compensate for such consequences. Moreover, taxation does not negatively affect aggregate economic activity or employment, as consumers switch demand to other products that generate employment and may compensate for any employment loss in taxed sectors. Evidence also shows the revenues generated are generally spent on labour-intensive services. In the case of illicit trade in tobacco, evidence shows that illicit trade has not increased globally (rather the opposite) despite increases in tobacco taxes. Profit-maximising smugglers increase illicit cigarette prices along with the increases in licit cigarette prices. This implies that even when increased taxes divert some demand to the illicit market, they push prices up in the illicit market, discouraging consumption.

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Section: Regressivity Of Taxessupporting

confidence: 65%

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

Paraje,

Jha,

Savedoff

et al. 2023

BMJ Glob Health

Self Cite

View full text Add to dashboard Cite

show abstract

“…23 To confirm the consistency of our results, we conducted a robustness check by assuming two additional sets of own-price elasticities. For the lower bound, we assume −0.23 for kretek and −0.30 for white cigarettes, 29 while for the upper bound we assume −0.84 for kretek and −0.97 for white cigarettes (results provided in the online supplemental material ). In order to isolate the impact of a tax and price change on consumption, we assume no change in income.…”

Section: Methodsmentioning

confidence: 99%

Macroeconomic impact of tobacco taxation in Indonesia

Bella

Swarnata²,

Vulovic

et al. 2023

Tob Control

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BackgroundA significant tobacco tax increase has long been advocated to reduce Indonesia’s high smoking prevalence. However, implementing such a policy remains challenging due to the tobacco industry’s argument that it would negatively impact the economy.ObjectiveThis study aims to provide a comprehensive estimate of the net impact of tobacco taxation on Indonesia’s economy.MethodThe impact of the tax hike on the economy is simulated through a change in cigarette demand and reallocation of household’s budget and allocation government spending from additional tobacco tax revenue. Input-output analysis is employed to estimate the net effect of the tobacco tax rise on the total economic output, income and employment in Indonesia.FindingIncreasing the tobacco tax would generate a net positive impact on the economy as it would increase economic output, household income and employment. The positive impact is mainly driven by government spending from additional revenue from increased tobacco taxes. Spending tax revenue using the current structure of government spending has the potential to generate the optimal economic effect. Increasing tobacco tax by 45% from the 2019 tax level would increase economic output, household income and employment by Rp84.2 trillion, Rp24.1 trillion and 400.3 thousand jobs, respectively.

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The Distributional Effects of Tobacco Taxation: The Evidence of White and Clove Cigarettes in Indonesia

Cited by 2 publications

References 26 publications

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

Taxation of tobacco, alcohol, and sugar-sweetened beverages: reviewing the evidence and dispelling the myths

Macroeconomic impact of tobacco taxation in Indonesia

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