A General Equilibrium Analysis of the Macroeconomic Impacts of Tobacco Taxation

This Report was written by the Centro de Investigación en Alimentación y Desarrollo (CIAD) in Mexico. The report discusses the macroeconomic impacts of tobacco taxation in Mexico. Specifically, the researchers estimate the impact that increasing the specific component of the Excise Tax on Production and Services (IEPS) to 76% of the retail price (1.50 pesos per cigarette). As a result, consumption would decrease by 26%, while government revenues would increase by 49%. There would not be major impact on macroeconomic variables because the tobacco production chain does not interact excessively with other economic sectors. The minimal loss of employment in the tobacco industry would be more-than-offset by investing in the health sector to create more jobs. The report concludes that increasing the IEPS in Mexico is beneficial to smokers, themselves, but also to the greater economic standing of the country.

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A Policy Brief based on the report can be found here.