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...
| Main Authors: | , , |
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| Language: | English |
| Published: |
Washington, DC: World Bank
2018
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/122081521480061194/Long-run-impacts-of-increasing-tobacco-taxes-evidence-from-South-Africa http://hdl.handle.net/10986/29497 |
| 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. The 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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