Long-Run Impacts of Increasing Tobacco Taxes : Evidence from South Africa
Tobacco taxes are considered an effective policy tool to reduce tobacco consumption and produce long-run benefits that outweigh the costs associated with a price increase. Through this policy, some of the most adverse effects and economic costs of smoking can be reduced, including shorter life ex...
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| Language: | English |
| Published: |
World Bank, Washington, DC
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/705011519972901407/Long-run-impacts-of-increasing-tobacco-taxes-evidence-from-South-Africa http://hdl.handle.net/10986/29439 |
| Summary: | Tobacco taxes are considered an effective policy tool to reduce tobacco consumption
and produce long-run benefits that outweigh the costs associated
with a price increase. Through this policy, some of the most adverse effects and
economic costs of smoking can be reduced, including shorter life expectancy,
higher medical expenses, added years of disability among smokers, and the
effects of secondhand smoke. Nonetheless, tobacco taxes are often considered
regressive because low-income households tend to allocate a larger share of
their budgets to purchasing tobacco products. This paper uses an extended
cost-benefit analysis to estimate the distributional effect of tobacco taxes on
household welfare in South Africa. The analysis considers the effect on household
income through an increase in tobacco prices, changes in medical expenses, and
the prolongation of working years. Results indicate that a rise in tobacco prices
initially generates negative income variations across all groups in the population.
If benefits through lower medical expenses and an expansion in working years
are considered, the negative effect is reduced, particularly in medium- and
upper-bound elasticities. Consequently, the aggregate net effect is progressive
and benefits the bottom deciles more than the richer ones. Overall, tobacco
tax increases exert a small, but positive effect in the presence of low conditional
tobacco price elasticity. If the population is more responsive to tobacco price
changes (or participation elasticity estimates are included) then they would
experience even more gains from the health and work benefits. More research
is needed to clarify the distributional effects of tobacco taxation in South Africa. |
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