March 6, 2018

Widening the lens on tobacco taxes and poverty

This week, the Tobacconomics group released a new Policy Brief examining the global evidence linking tobacco use to poverty and the difference tobacco taxation can make in disrupting cyclical poverty. This Brief challenges the assumption that tobacco taxes are regressive and the hurt the poor, and instead shows that increasing tobacco taxes are able to reduce tobacco use and its associated cyclical poverty.

While it is true that in most countries, poor and less educated people are more likely to smoke than others, empirical evidence from countries at all income levels demonstrates that lower-income populations are two to three times more responsive to price than other income groups when it comes to changing their smoking habits.

When you widen the lens to include the global evidence on the difference tobacco taxes can make on poor smokers’ tobacco use, the picture becomes clear:

Poor smokers respond to higher tobacco taxes and prices, and less smoking means better health and greater productivity. Smokers’ families also benefit in the form of reduced second-hand smoke and freed up household income, which can be redirected to poverty-reducing investments like education, housing, and nutrition. There are also important inter-household equity issues at play. Given that there are roughly six times more male than female smokers globally, reducing tobacco use means that the additional household income (which tends to be allocated by women for the benefit of children) can be put to better use.

Finally, society as a whole benefits from lower public health costs and more productive citizens. The linkages between tobacco use and poverty also reveal an important development issue. Eighty percent of deaths related to tobacco use worldwide occur in low- and middle-income countries. Most of these countries have little fiscal space to take on public health expenditures to treat tobacco-related diseases. And many of these countries host emerging economies that require a healthy workforce. Additional revenues from increased tobacco taxes can be used to support tobacco control efforts as well as expand health coverage for low-income populations, as the case from the Philippines illustrates.

Even when taxes are increased, especially in low- and middle-income countries experiencing economic growth, taxes must be set high enough and increased often enough to keep pace with inflation and income growth. Otherwise, increasing cigarette affordability will erode the effectiveness of the tax and smoking prevalence will not decrease. If governments are serious about achieving poverty-reduction, development, health, and even equity goals, the global evidence supporting increased tobacco taxation should be taken into consideration. From this vantage point, tackling tobacco use through effective taxation policy has significant benefits, not only for poor smokers, but also for their households, and society at large.

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