The Macroeconomic Impacts of Tobacco Taxation in Indonesia

This Report was written by the Center for Indonesia's Strategic Development Initiatives (CISDI) in Indonesia. The report simulates three tax increase scenarios and estimates the macroeconomic impact of each, including the impact on total output, income, and employment. The first scenario analyzes the 2020 tax increase, in which the excise tax on kretek and cigarettes is increased by 23.78% and 27.15%, respectively. The second scenario increases excise taxes on cigarettes by 30%, while the third one increases taxes by 45%. The findings show that higher taxes would lead to a greater reduction in consumption in addition to generating higher tax revenue compared to the more modest tax increase. Increasing cigarette taxes also would have a net positive impact in terms of the aggregate economic output, employment, and income. The report concludes by recommending that Indonesia improve its cigarette tax policy in an effort to reap the macroeconomic benefits in addition to the individual-level public health benefits. 

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