Questioning the regressivity of tobacco taxes: a distributional accounting impact model of increased tobacco taxation

BACKGROUND: Tobacco taxes, as with other ‘sin taxes’, are generally regarded as a highly cost-effective mechanism to reduce consumption but are often considered by policymakers to be regressive, undermining efforts to fully implement them at levels recommended by the WHO due to concerns of fairness. We aim to demonstrate whether there are circumstances in which the impacts of additional tobacco taxes are not regressive, using a standard income-share accounting definition of tax burden. METHODS AND FINDINGS: We apply mathematical modelling and explore the hypothetical distributions in the net change in tobacco taxes and cigarette expenditures by income group, following an increase in tobacco taxation. The hypothetical distribution per income group of additional taxes and cigarette expenditures borne by individuals following tobacco tax hikes was calculated with respect to a selection of parameters including: the change in the retail price of cigarettes, the price elasticity of demand for tobacco, smoking prevalence, cigarette consumption and individual income. We determine the range of hypothetical parameter values for which increased tobacco taxation should not be considered to penalise the poorest income groups when examining marginal cigarette consumption expenditures and using an accounting definition of tax burden. CONCLUSIONS: Our findings question the doctrine that tobacco taxes are uniformly regressive from a standard income-share accounting view and point to the importance of the specific features of tax policy to shape a progressive approach to tobacco taxation: tobacco tax increases are less likely to be regressive when accompanied by a broad framework of demand-side measures that enhance the capacity of low-income smokers to quit tobacco use.