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The Role of Taxation in Tobacco Control and Its Potential Economic Impact in China
  1. Teh-wei Hu1,*,
  2. Zhengzhong Mao2,
  3. Jian Shi3,
  4. Wendong Chen4
  1. 1 University of California, School of Public Health, United States;
  2. 2 Sichuan University, Department of Health Economics, China;
  3. 3 Research Institute of Taxation Science, State Administration of Taxation, China;
  4. 4 Taxation Branch Institute, State Administration of Taxation, China
  1. Correspondence to: Teh-wei Hu, School of Public Health, University of California, Berkeley, Professor of Health Economics, School of Public Health, University of California, Berkeley, 412 Earl Warren Hall, Berkeley, CA 94720-7360, USA; thu{at}berkeley.edu

Abstract

Objectives: To identify key economic issues that need to be addressed for raising the tobacco tax and to recommend possible options for tobacco tax reform in China.

Methods: Estimated price elasticities of the demand for cigarette smoking, prevalence data, and epidemiology are used to estimate the impact of a tobacco tax increase on cigarette consumption, government tax revenue, lives saved, employment and revenue loss in the cigarette industry and tobacco farming.

Results: An increase of one RMB (or US $0.15) per pack of cigarettes will increase the Chinese government's tax revenue by 85.4 billion RMB (US 10.41 billion), decrease consumption by 3.1 billion packs of cigarettes, reduce the number of smokers by 4.1 million, and save 1 million lives. The short-term loss to the tobacco economy will be about 6.00 billion RMB (only 74% of the government tax gain).

Conclusion: The empirical economic analysis and tax simulation results clearly indicate that increasing the tobacco tax in China is the most cost-effective instrument for tobacco control.

What this paper adds: This paper provides a concrete recommendation for tobacco tax policy. It also provides comprehensive estimates of the impact of a tobacco tax increase on the Chinese economy.

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