Impacts of Tobacco Taxation on Poverty and Inequality in Serbia [Working Paper Series]

This Working Paper was written by the Institute of Economic Sciences (IES) in Serbia. The working paper examines the impact of two different tobacco tax increase scenarios on poverty and inequality. Specifically, the researchers consider a 25% and 50% increase in the specific excise tax. The findings suggest that tobacco excise taxes are progressive and raising excise taxes would reduce the tax burden that low-income households face. These scenarios would result in a very small increase in poverty as the poverty headcount would grow up to 1 percentage point. However, additional policies could be implemented to reduce or even reverse this impact, such as allocating additional tax revenues to subsidize beneficial goods and services that represent significant budget shares among lower-income households. The working paper concludes with recommendations for policy makers to raise tobacco taxes to reduce inequality and strategically dedicate additional tax revenues to benefit those in poverty.

A Policy Brief based on the working paper can be found here.