Distributional Analysis Considering Long-Run Health Benefits of Increasing Tobacco Taxes in Argentina

This Report was written by Centro de Estudios, Distributivos, Laborales y Sociales (CEDLAS) in Argentina. The report assesses the distributional impacts of two tobacco tax reform scenarios on household cigarette expenditure, medical expenses, and available income. In the first scenario, the internal tax would increase from 70% to 75%, raising prices by 18.3%. In the short-term, low-income smokers would reduce their consumption more than high-income smokers as they are more responsive to price, reducing their tax burden. In the long-term, all income groups would see an increase of their available income, with lower income groups seeing a higher increase. The poorest quintile would save between 1.1 and 1.7 percentage points of their available income due to lower tobacco-related medical spending and more productive years of work while the richest quintile would save between 0.1 and 0.2 percentage points of their income. In the second scenario, the current ad valorem rate would be replaced with a fixed specific tax, raising the price of cigarettes by 41%. This reform would be even more progressive, with the poorest quintile increasing their available income between 2.7 and 4.0 percentage points, while the richest quintile would increase their available income between 0.3 and 0.5 percentage points. These findings demonstrate that tobacco taxes are not regressive and benefit the poorest smokers when the indirect effects are considered. The report concludes with recommendations for policy makers for more effective tobacco taxation that improves the wellbeing of the low-income group.

A Policy Brief based on report can be found here.