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The distributional effects of tobacco taxation: the evidence of white and clove cigarettes in Indonesia

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  • Fuchs,Alan

Abstract

Despite the well-known positive impact of tobacco taxes on health outcomes, policy makers hesitate to use them because of their possible regressive effect, that is, poorer deciles are proportionally more negatively affected than richer ones. Using an extended cost-benefit analysis to estimate the distributional effect of white and clove cigarettes in Indonesia, this study finds that the long-run impact may be progressive. The final aggregate effect incorporates the negative price effect, but also changes in medical expenditures and additional working years. The analysis includes estimates of the distributional impacts of price rises on cigarettes under various scenarios using 2015?16 Indonesia National Socioeconomic Surveys. One contribution is to quantify the impacts by allowing price elasticities to vary across consumption deciles. Overall, clove cigarette taxes exert an effect that depends on the assumptions of conditional price elasticity. If the population is more responsive to tobacco price changes, then people would experience even more gains from the health and work benefits. More research is needed to clarify the distributional effects of tobacco taxation in Indonesia.

Suggested Citation

  • Fuchs,Alan, 2018. "The distributional effects of tobacco taxation: the evidence of white and clove cigarettes in Indonesia," Policy Research Working Paper Series 8558, The World Bank.
    • Handle: RePEc:wbk:wbrwps:8558
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    Cited by:

    1. World Bank, 2019. "Indonesia Economic Quarterly, December 2019," World Bank Publications - Reports 33033, The World Bank Group.
    2. Jain, Vageesh & Crosby, Liam & Baker, Peter & Chalkidou, Kalipso, 2020. "Distributional equity as a consideration in economic and modelling evaluations of health taxes: A systematic review," Health Policy, Elsevier, vol. 124(9), pages 919-931.

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