The overall demand for tobacco products is significantly affected by changes in tobacco product taxes and prices. Raising taxes to increase the price of tobacco products is the most effective means to reduce tobacco use (WHO, 2010). Price affects all aspects of tobacco consumption, with higher prices preventing initiation among potential users, inducing cessation among current users, and reducing the frequency of consumption and amount consumed by continuing users. Tobacco tax increases that increase prices improve population health (Fichtenberg and Glantz, 2000). Higher tobacco taxes are especially effective in reducing tobacco use among lower-income groups and preventing especially the youth from starting to smoke. However, this measure has registered the least progress according to WHO Global Progress Report 2012. In 2008, 7% of people worldwide (490 million people in 22 countries) were subject to tax rates sufficiently high to represent 70% of the retail price of cigarettes. In 2012, that had increased to only 530 million people (8% of world population) in 32 countries. Low-income countries, which are in greater need of government funding for tobacco control programmes, are the least likely to have sufficiently high tax rates.
Specific taxation is the appropriate instrument when targeting public health, as it has two favourable effects. First, increases in specific excises would lead to relatively higher price increases, causing price sensitive consumers to reduce their consumption relatively more. Second, it reduces consumers’ incentives to substitute lower-priced brands for higher-priced ones, especially when consumers find it difficult to quit or reduce consumption after a tax increase. This impact will be greater on poor and youth smoking behaviour given their budget constraints.
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