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The substitution effect of cigarette excise tax for tobacco leaf tax in China

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  • Hailong Cai
  • Xiuqing Wang

Abstract

Purpose - The purpose of this paper is to examine the increase in the cigarette excise tax needed to keep tax revenue constant in the face of the cancellation of the tobacco leaf tax. Design/methodology/approach - Equilibrium‐displacement model was employed to simulate the substitution effect. Findings - The results suggest the “substitution effect elasticity (SEE)” is between −0.127 and −0.063. This means a 100 per cent cut in the tobacco leaf tax rate would necessitate an increase in the cigarette excise tax rate of between 6.3 and 12.7 per cent. Sensitivity analysis indicates SEE is most sensitive to the retail demand elasticity and oligopoly power and least sensitive to input substitution elasticity and returns to scale. Originality/value - This paper provides a framework to analyze the policy effects of the Chinese tobacco industry. The findings in this study are very important for government to make policies in the future.

Suggested Citation

  • Hailong Cai & Xiuqing Wang, 2010. "The substitution effect of cigarette excise tax for tobacco leaf tax in China," China Agricultural Economic Review, Emerald Group Publishing Limited, vol. 2(4), pages 385-395, November.
    • Handle: RePEc:eme:caerpp:v:2:y:2010:i:4:p:385-395
    DOI: 10.1108/17561371011097704
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    References listed on IDEAS

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    Cited by:

    1. Yanjun Ren & Bente Castro Campos & Jens-Peter Loy, 2020. "Drink and smoke; drink or smoke? The interdependence between alcohol and cigarette consumption for men in China," Empirical Economics, Springer, vol. 58(3), pages 921-955, March.
    2. Muhammad Safdar Sial & Chunmei Zheng & Jacob Cherian & M.A. Gulzar & Phung Anh Thu & Tehmina Khan & Nguyen Vinh Khuong, 2018. "Does Corporate Social Responsibility Mediate the Relation between Boardroom Gender Diversity and Firm Performance of Chinese Listed Companies?," Sustainability, MDPI, vol. 10(10), pages 1-18, October.

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