Looking Back on 2022: A Round-Up of Research on Tobacco from Southeastern Europe
In 2022, our think tank partners in Southeastern Europe continued to produce high-quality economic research, highlighting the importance of tobacco control in the region. Tobacco use is placing a huge burden on countries without significantly contributing to their economies. Raising tax rates and improving tobacco tax structures are crucial to reducing these harms, especially among vulnerable groups like the poor and youth.
Producing tobacco is a costly endeavor for countries like North Macedonia. Between 2008 and 2019, Analytica found that one-fourth of all agricultural subsidies, or EUR 241 million, went towards tobacco farming, even as the global demand for cigarettes declined. Despite these substantial subsidies, tobacco farmers earn less than the monthly average income in North Macedonia. The country is also experiencing a large and growing trade deficit in agricultural and food products—put simply, the country is exporting heavily-subsidized raw tobacco while importing higher value agricultural goods, many of which could be produced and consumed domestically and even exported more lucratively than tobacco (and not subsidized).
In Bosnia and Herzegovina, researchers from University of Banja Luka (UBL) estimate that the total economic cost of smoking in 2019 amounted to around 2.36% of GDP, or between BAM 718.74 and 973.68 million. This includes the direct costs of providing health care to treat smoking-attributable diseases and the indirect costs due to lost productivity from morbidity and premature mortality. The findings show that the direct cost of tobacco-related health care account for between 25.57% and 35.14% of the total cost of health care in the country. Further, the indirect costs of morbidity are between BAM 50.59 and 66.67 million, and the indirect costs of mortality are between BAM 110.85 and 141.01 million.
Across the region, countries have the opportunity to reduce these harms and reap the benefits of improved tobacco tax policies. Evidence from Institute of Economic Sciences (IES) shows that the net impact of tobacco tax increases on output, income, and employment in Serbia would be positive if the additional revenue is appropriately allocated. The researchers find that raising the excise tax by 43.6% and reallocating revenues towards agriculture and food production, education and science, and health and social work would increase output and household income by RSD 16 billion and 4.5 billion, respectively, as well as create 5,300 jobs.
In Albania, Development Solutions Associates (DSA) compared the effect of two tax increase scenarios on consumption, revenue collection, and tobacco-related deaths. The results show that the country’s existing annual increase of 4% fails to reduce tobacco consumption. Instead, if policy makers implemented the recommendation from the World Bank to increase taxes by 8% each year from 2022 to 2024, followed by an annual increase of 5% from 2025 to 2030, consumption would significantly decrease. This second scenario, based on the recommendation from experts, would also raise 5% more in tax revenues compared to the baseline scenario and avert 33,000 additional deaths. Half of these deaths would be among low-income smokers, which highlights the importance of tobacco control for low-income individuals.
IES in Serbia and Institute of Socioeconomic Analysis (ISEA) in Montenegro further demonstrated that raising tobacco taxes is beneficial for the poor. Following a 43.6% tax increase in Serbia, disposable income in low-income households would increase by 2.9%, compared to only 0.01% in high-income households. Similarly, in Montenegro, raising the excise tax rate by 50% would increase available income in low-income households by between 1.6% and 1.8%, and only 0.2% in high-income households. The differences between income groups is due to a larger reduction in tobacco spending and medical expenses, as well as a greater increases in productivity among the poor in both countries.
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In Albania, DSA also focused specifically on youth. Their findings suggest that young people respond to price and non-price tobacco control policies. Specifically, a 10% increase in the price of cigarettes would reduce initiation by 5%. Furthermore, reducing exposure to others’ smoking through enforced business and individual penalties has helped to reduce youth initiation significantly. Tobacco control policies are effective in deterring impressionable young people from smoking.
The research from our think tank partners in SEE in 2022 evaluates the harm caused by tobacco use on macroeconomic, household, and individual levels. The results consistently demonstrate the immense costs of tobacco on one hand, and the potential benefits of tobacco taxes on the other. In each country, tobacco taxes represent an opportunity for decision makers to improve public health by reducing consumption, while still raising much-needed tax revenues.