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Tobacco Economic of Indonesia: Poor Households' Spending Pattern, Tax Regressivity and Economic Wide Impact of Cigarette Excise Tax Simplification

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Author Info

  • Rus'an Nasrudin

    (Department of Economics, Faculty of Economics, University of Indonesia)

  • Ledi Trialdi

    (Department of Economics, Faculty of Economics, University of Indonesia)

  • Djoni Hartono

    (Graduate Program in Economics, Faculty of Economics, University of Indonesia)

  • Abdillah Ahsan

    (The Demographic Institute, Faculty of Economics, University of Indonesia)

Abstract

Policy to reduce cigarette consumption is needed because of the harm to both smokers and the surrounding healthy. In narrow sense, the harm of cigarette consumption for poor households needs to be taken into account into policy consideration as it expected to sacrifies essential spending for the poor. In general, any policy related to any influential sector in the economy, including tobacco sector, needs an economic wide impact consideration. This study aims to justify the policy on three grounds: analysis on poor household with smoker in terms of their spending pattern, an assessment of the cigarette excise tax burden's regressivity and and economic wide impact analysis of a cigarette excise tax simplification. This study find that there is tendency of lower spending on essential good (health and food) of poor household with smoker than without smoker. Secondly, indeed, the tax burden of Indonesia's excise tax is regressive so that it put burden more to the poor than the richer. Lastly, a cigarette tax increase will reduce national output with considerably small impact but moderately increase government revenue to boost the economy through infrastructure spending as the optimum opt.

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Bibliographic Info

Paper provided by Faculty of Economics, University of Indonesia in its series Working Papers in Economics and Business with number 201302.

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Length: 24 pages
Date of creation: Mar 2013
Date of revision: Mar 2013
Handle: RePEc:lpe:wpecbs:201302

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Related research

Keywords: Cigarette; Consumption Pattern; Excise Tax; Regressivity; Computable General Equilibrium;

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