Higher Taxes on Tobacco, Alcohol, and Soft Drinks: An Effective Policy to Decrease Consumption and Increase Revenue

This Policy Brief was written by the Centro de Investigación en Alimentación y Desarrollo (CIAD) in Mexico. The policy brief examines the effect that an increase in tobacco taxation has on the consumption of tobacco, alcohol, and soft drinks, as well as on smokers with specific NCDs, or comorbidities in Mexico. The authors find that these goods are complementary, meaning that higher prices of tobacco, alcohol, or soft drinks would reduce consumption of each one. Among smokers, a 10% increase in cigarette prices would reduce tobacco consumption by 6.8%, alcohol consumption by 1.4%, and soft drink consumption by 0.5%. Further, simultaneously increasing prices of these goods would lead to a larger aggregate reduction in consumption. Increasing cigarette prices by 43.7%, alcohol prices by 8.3%, and soft drink prices by 8.7% would reduce cigarette consumption by 40.6%, alcohol consumption by 6.9%, and soft drink consumption by 7.2%. The research shows that smokers with comorbidities are more responsive to price increases compared with the general population of smokers. Increasing the price of cigarettes by 43% would lead to a 7.9% decrease in smoking among people with high blood pressure, 9.1% decrease among people with diabetes, and 4.3% decrease among people with obesity. The policy brief concludes that increasing taxes on these goods would allow Mexico to improve the health of the population, while raising additional funds which can be used to cover the costs of the COVID-19 pandemic. 

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A corresponding Report can be found here.