Looking Back on 2023: New Global Research on the Economics of Tobacco and Alcohol
Promoting Tobacco Control to Lessen Disparities Through Local Research
Our team, mostly comprising economists, began engaging with tobacco control efforts in 2018. Last year, we especially focused our research on vulnerable populations as part of a greater effort to advance equity.
Evidence produced by our think tank partners in Asia, Latin America, and Eastern Europe demonstrates that tobacco use disproportionately harms those in low-income groups (learn more about using household expenditure surveys to assess the crowding out and impoverishing effects of tobacco use in our newly updated toolkit). On the other hand, tobacco control policies, especially including raising tobacco excise taxes, benefits these populations more than their higher-income counterparts (learn more about the methodology to assess the distributional impact in our recently published toolkit). Specifically:
- Tobacco use pushed nearly 13,000 households below the poverty line in Albania, including more than 10,000 children, and lowered average incomes of smoking households by 2%; and
- Raising the internal tobacco tax from 70% to 75% would save the poorest quintile between 1.1 and 1.7 percentage points of their available income in Argentina, while the richest quintile would save between 0.1 and 0.2 percentage points of their available income.
- A 7% increase in household spending on cigarettes raises the likelihood of stunting in children by 33% in low-income households in Indonesia, compared to 28.7% in higher income ones.
Reducing the affordability of tobacco products is crucial to protect public health, especially among the poor and youth. Both groups typically have more limited budgets, so significant price increases following a substantial excise tax increase are effective in deterring them from tobacco use. Furthermore, price indirectly affects the decision of youth (not) to smoke through the influence of friends and family members because these individuals are also sensitive to price. Findings include:
- Increasing cigarette prices by 10% would delay smoking initiation by 4.3% (around 4 months) in Argentina and reduce daily smoking prevalence by 1.08%.
- A 10% cigarette price increase would delay smoking initiation by 35% (almost 2.5 years) in Brazil and reduce daily smoking prevalence by 2.6%.
- Raising cigarette prices by 10% would reduce risk of youth smoking by 13.1% in Kosovo, and even more so among girls.
- Reducing affordability of cigarettes by 1% would decrease consumption by 3% among adults in Kosovo.
- Raising the price of cigarettes by 10% would reduce the probability of smoking onset among youth between 2.2% and 3.7% in Montenegro, with an even larger effect on girls.
- A 10% price increase on cigarettes would reduce the likelihood of youth smoking initiation by 3% in North Macedonia indirectly, through other relevant factors like friends and family smoking.
- The leaked revision to the European Union’s Tobacco Tax Directive modestly raises taxes which would lead to a small decrease in cigarette consumption and a small increase in tax revenues. However, a more ambitious revision is necessary to reap greater benefits for all countries across the EU.
Our think tank partners also assessed the tobacco market to better understand and counter industry strategy. These findings vary from country to country, yet clearly the tobacco industry is aggressively targeting vulnerable groups to encourage smoking initiation and gain lifelong customers globally. The industry also pushes inaccurate narratives that deter tobacco tax increases, such as the supposed dire threat of the illicit market or claims of decreased profits. Recent research shows:
- Increasing the price of illicit cigarettes by 55% would reduce the size of the illegal market in Brazil by 98% and decrease overall consumption by 5%. An improved track and trace system, stronger enforcement and directly addressing the flow of these products from Paraguay would help to drive up prices.
- The size of the illicit market in Montenegro decreased by about half from 2019 to 2022 as the government prohibited the storage of cigarettes in a major free-trade zone, increased surveillance, and strengthened enforcement.
- Tobacco companies tend to under-shift—absorbing some of the tax increase— on cheaper cigarettes (such as slims particularly aimed at young women and girls) in Montenegro while over-shifting—increasing prices more than the tax increase— on premium brands to maintain a wide price gap.
- Even with substantial government subsidies, tobacco farming in North Macedonia is not a profitable endeavor as most farmers growing other crops earn higher incomes.
- The market for cigarettes in Pakistan is largely dominated by 3 brands which are consumed by 80% of smokers.
- The tobacco industry altered patterns of cigarette production in Pakistan to avoid the excise tax increase and influence tax policies resulting in an increase of profits, even following the tax reform.
For select countries that are among the countries with the most smokers in the world, we regularly update our evidence matrices that track the generation of relevant research on the economics of tobacco and tobacco control. Please see the 2023 versions here: Bangladesh, Brazil, Indonesia, Mexico, Pakistan, and Vietnam.
Finally, we provided vigorous support to policy makers by sharing simulation models that estimate the tax revenue and public health impacts of various tobacco tax reforms (learn more about the methodology to estimate these effects in our recently published toolkit). In Argentina, Bangladesh, Bosnia and Herzegovina, Brazil, Mexico, North Macedonia, Pakistan, and Serbia, tax policies do not currently align with best practices, meaning that countries are missing out on public health benefits and tax revenues. For example, in Mexico, the nationwide cost of treating just three smoking-related diseases is 7.4x higher than the excise tobacco tax revenue that states receive. These findings confirm the urgent need to strengthen tobacco control policies, and especially tobacco taxes, in LMICs around the world.
Laying the Groundwork to Reduce Alcohol-Related Harms
More recently, we increased our efforts on alcohol control—especially using taxes to drive up prices—and expanded our collaboration to new LMICs and think tanks. We explored the literature on this topic in these countries to assess the findings and gaps in the research. Evidence matrices from Kenya, Mexico, the Philippines, and Sri Lanka highlight the key findings of existing studies from each country, with an emphasis on alcohol taxation. Working with our partners, we have already simulated tax increases in several countries and shared the results with policy makers and other stakeholders, and we are producing other original research related to the economics of alcohol use and alcohol control, especially taxation.
Looking Towards the Future
As we enter 2024, we are excited to continue to generate high-quality research with our partners that supports effective policies to reduce the harms associated with tobacco and alcohol use in LMICs. Such policies have the potential to improve public health, promote equity, and raise much-needed additional tax revenues for governments. Taxation policies, especially, are still mostly underutilized by policy makers, so we hope that more countries begin to align with best practices and reap the associated benefits for health and prosperity over the coming year.