The effects of a tobacco excise tax reform: winners and losers
DOI:
https://doi.org/10.24275/uam/azc/dcsh/ae/2024v39n101/LlamasKeywords:
Revenues , Excise Tax, Tobacco industry , Tobacco, ConsumptionAbstract
While literature suggests more aggressive cigarette tax reforms to reduce its affordability as well as the tobacco epidemic the tobacco industry argues that these measures, would affect the economy. The goal of this study is to analyze the size of the tobacco sector in Mexico through specific relevant variables on prices and brands and simulate different tobacco excise reforms. An increase in tobacco taxes would indeed decrease consumption and would increase revenues as well, when considering different and recent tobacco price elasticities. Elasticity was estimated for the year 2020 and changes on prices were computed by considering the most recent tobacco tax reforms in 2021 which updated the price according to rise on inflation and two additional reforms by using distinct cigarette brands. The results indicate that a specific tax of an additional peso and $1.50 pesos per cigarette would reduce consumption in the range from 21.7% to 27.7% and increase revenues from 13.4% to 22.7%. The novelty of this work is that the greatest reduction in consumption would be observed in lower-priced brands.
JEL Classification: L66, H23, H20, D10
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Copyright (c) 2024 Linda Irene Llamas Rembao, Luis Huesca Reynoso, Beatriz Alejandra Hurtado Bringas
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