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Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria

This study endeavors to answer two questions: which category of excise taxes is more appropriate for Senegal and Nigeria and which consequences an increase of the tobacco taxes would have on the price, the demand and the tax revenues in each one of the two countries? To answer these questions, we ad...

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Detalles Bibliográficos
Autores principales: Azomahou, Théophile T., Baldé, Racky, Diagne, Abdoulaye, Mané, Pape Yona, Kaba, Ibrahima Sory
Formato: Online Artículo Texto
Lenguaje:English
Publicado: Public Library of Science 2019
Materias:
Acceso en línea:https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6375595/
https://www.ncbi.nlm.nih.gov/pubmed/30763374
http://dx.doi.org/10.1371/journal.pone.0212015
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author Azomahou, Théophile T.
Baldé, Racky
Diagne, Abdoulaye
Mané, Pape Yona
Kaba, Ibrahima Sory
author_facet Azomahou, Théophile T.
Baldé, Racky
Diagne, Abdoulaye
Mané, Pape Yona
Kaba, Ibrahima Sory
author_sort Azomahou, Théophile T.
collection PubMed
description This study endeavors to answer two questions: which category of excise taxes is more appropriate for Senegal and Nigeria and which consequences an increase of the tobacco taxes would have on the price, the demand and the tax revenues in each one of the two countries? To answer these questions, we adopt a double approach: first, a theoretical model of taxation with variety; and second, a simulation model to answer the second question. The results of the theoretical model indicate that, in the context of excise taxation, the number of products variety—or that of cigarette brands—directly affects both the degree of market concentration and the marginal effects of specific and ad valorem excise taxes on the price of tobacco. In addition, the comparison of the marginal effects of ad valorem and specific excise taxes depends on the marginal costs of production of different varieties weighted by the tax rates and the number of varieties. Our empirical results first show that the specific excise taxes are more adapted to Senegal while ad valorem excise taxes fit best Nigeria. This result crucially matters for the excise taxes are exclusively of an ad valorem nature in both Senegal and Nigeria. It is perfectly possible to envisage a situation where the two main forms of excise taxes could co-exist. It also appears from our results that tax development does not have the same implications for the two countries. Increasing tobacco taxes in Senegal strongly reduces the demand, but also induces a decrease in the tax revenues, while this will imply a lesser decline in demand in Nigeria accompanied however by a sharp increase of the country’s tax revenues. This difference stems from the fact that the price-elasticity of tobacco demand is very high in Senegal, contrary to Nigeria. Finally, it is important to mention that there is a specific threshold beyond which the tax increases cease to have a positive effect on tax revenues in Nigeria.
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spelling pubmed-63755952019-03-01 Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria Azomahou, Théophile T. Baldé, Racky Diagne, Abdoulaye Mané, Pape Yona Kaba, Ibrahima Sory PLoS One Research Article This study endeavors to answer two questions: which category of excise taxes is more appropriate for Senegal and Nigeria and which consequences an increase of the tobacco taxes would have on the price, the demand and the tax revenues in each one of the two countries? To answer these questions, we adopt a double approach: first, a theoretical model of taxation with variety; and second, a simulation model to answer the second question. The results of the theoretical model indicate that, in the context of excise taxation, the number of products variety—or that of cigarette brands—directly affects both the degree of market concentration and the marginal effects of specific and ad valorem excise taxes on the price of tobacco. In addition, the comparison of the marginal effects of ad valorem and specific excise taxes depends on the marginal costs of production of different varieties weighted by the tax rates and the number of varieties. Our empirical results first show that the specific excise taxes are more adapted to Senegal while ad valorem excise taxes fit best Nigeria. This result crucially matters for the excise taxes are exclusively of an ad valorem nature in both Senegal and Nigeria. It is perfectly possible to envisage a situation where the two main forms of excise taxes could co-exist. It also appears from our results that tax development does not have the same implications for the two countries. Increasing tobacco taxes in Senegal strongly reduces the demand, but also induces a decrease in the tax revenues, while this will imply a lesser decline in demand in Nigeria accompanied however by a sharp increase of the country’s tax revenues. This difference stems from the fact that the price-elasticity of tobacco demand is very high in Senegal, contrary to Nigeria. Finally, it is important to mention that there is a specific threshold beyond which the tax increases cease to have a positive effect on tax revenues in Nigeria. Public Library of Science 2019-02-14 /pmc/articles/PMC6375595/ /pubmed/30763374 http://dx.doi.org/10.1371/journal.pone.0212015 Text en © 2019 Azomahou et al http://creativecommons.org/licenses/by/4.0/ This is an open access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.
spellingShingle Research Article
Azomahou, Théophile T.
Baldé, Racky
Diagne, Abdoulaye
Mané, Pape Yona
Kaba, Ibrahima Sory
Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title_full Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title_fullStr Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title_full_unstemmed Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title_short Public finances and tobacco taxation with product variety: Theory and application to Senegal and Nigeria
title_sort public finances and tobacco taxation with product variety: theory and application to senegal and nigeria
topic Research Article
url https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6375595/
https://www.ncbi.nlm.nih.gov/pubmed/30763374
http://dx.doi.org/10.1371/journal.pone.0212015
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