Taxation of Cigarettes in the Bloomberg Initiative Countries: Overview of Policy Issues and Proposals for Reform
Emil M. Sunley, formerly Assistant Director, Fiscal Affairs Department, International Monetary Fund and formerly Deputy Assistant Secretary for Tax Policy, US Treasury Department.
To reduce the demand for
tobacco, excise tax increases and the resulting
higher prices are a proven effective measure
that governments can adopt as part of an
overall strategy of tobacco control. The higher
excises will induce some smokers to quit;
reduce consumption by continuing smokers;
prevent others from starting; and reduce the
number of ex-smokers who resume. Empirical
studies have found that a 10 percent cigarette
price increase will reduce consumption by 4
percent in high-income countries and 8 percent
in low- and middle-income countries, as people
with lower incomes are more responsive to price
increases (World Bank, 1999). Though
consumption is reduced, government revenue
increases.
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