Distributional Impacts of Tobacco Tax in Montenegro [Report]

This Report was written by the Institute of Socioeconomic Analysis (ISEA) in Montenegro. The report estimates the impact of a tobacco excise tax increase on cumulative income gains and applies an extended cost-benefit analysis (ECBA) to estimate the distributional impacts of tobacco taxes. The researchers find that increasing the excise tax by 50% would reduce spending on tobacco in the low-income group. The available income among the low-income group would increase by 0.8% (€1.7 million) as a result of a reduction in consumption, while the available income among the high-income group would decrease by 0.2%. The simulated tax increase would also reduce medical costs, increasing income between 0.4% and 0.6% among the low-income group (€1.1 million to €1.6 million) and around 0.1% among the high-income group. Finally, increasing the excise tax would increase productivity by reducing the number of years of working life lost. This change would increase income between 0.4% and 0.6% for all income groups. The net impact of a 50% increase in the excise tax would be progressive as it would increase the available income among the low-income group between 1.6% and 1.8% (€4.3 million to €4.9 million), compared to 0.2% among the high-income group. The researchers estimate that this tax reform would reduce premature deaths caused by smoking between 7.9% and 11.6%. The report concludes by developing a set of recommendations for Montenegro to reduce tobacco consumption using tobacco tax increases and other tobacco control policies.