March 27, 2018

Focus on Latin America: Chaloupka makes the case for tobacco taxation

Coinciding with Frank Chaloupka’s presentation today at the 30th Annual UN/ECLAC Regional Fiscal Policy Seminar in Santiago, Chile, Tobacconomics researchers, German Rodriguez Iglesias and Frank Chaloupka, released today a policy brief that investigates the challenges and opportunities for comprehensive tobacco control policies in Latin America. ´The Economics of Tobacco and Tobacco Control in Latin America´ provides a review of the economics of tobacco control efforts in the region and discusses the recent evidence on the economics of tobacco control from the region, including the effectiveness of tobacco control measures, the impact of raising tobacco taxes on prices and government revenues, and a discussion on the economic impact of tobacco control measures. The findings of the brief are primarily based on the US National Cancer Institute & World Health Organization (WHO) Monograph on the Economics of Tobacco and Tobacco Control.

Nearly 80% of the world’s smokers live in low-and middle-income countries, including 127 million in the Region of the Americas. There, tobacco use causes one million deaths and that number is expected to increase significantly in the coming years. Tobacco use also burdens national economies. In 2015, the economic burden of smoking in the Latin American health systems was US$ 34 billion, which is approximately 8% of regional health expenditures.

The brief features recent projections showing that raising cigarette taxes increases cigarette prices, reduces smoking prevalence, and prevents smoking-attributable deaths. As in other parts of the world, evidence in Latin America demonstrates that there is enough room to increase tobacco excise taxes and, at the same time, generate even more tax revenues. Increasing cigarette taxes by 50% would increase cigarette prices by 28%, resulting in a 7% decrease in sales and a 32% increase in tax revenues (that is, an increase of $ 7 billion dollars).

The brief also explores concerns related to increasing tobacco taxes, such as tax evasion and avoidance, tax incidence on lower-income groups, and broader economic impacts. Evidence from the region confirms that tax evasion and illegal manufacturing can be reduced through implementation of a combination of policies included in the WHO FCTC Protocol to Eliminate Illicit Trade in Tobacco Products: systematic monitoring of the production and distribution of tobacco products, licensing of manufacturers, and strict enforcement mechanisms, among other policies.

Similar to many other countries around the world, tobacco use in Latin America is concentrated among the most vulnerable groups. Tobacco use is associated with lower household budget shares allocated to healthcare, education, and housing expenses, especially among low-income populations. As higher taxes and prices discourage tobacco use, they also reduce expenditure on some of the most adverse effects of tobacco use, including higher medical expenses. In fact, taxes on tobacco lead to income growth when factoring in the lower long-term health costs and increased working years resulting from reduced consumption. For example, in Chile, a recent study by Alan Fuchs and Francisco Meneses concluded that tobacco tax increases would be financially progressive.

Chaloupka, co-author of the brief and the lead scientific editor for the Monograph, states that “raising taxes and prices of tobacco is not unfair to vulnerable or poor populations because smokers who quit have reduced long-term health care costs and enjoy longer lives and higher income producing years.”

The brief also addresses broader economic impacts of tobacco taxes and highlights evidence from Mexico and Argentina that shows the recent implementation of tobacco control policies in those countries had no adverse effects on restaurant income, employee wages, or employment. Chaloupka concludes, “evidence across Latin America shows that increasing tobacco taxes is good for health and productivity.”

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