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The distribution of cigarette prices under different tax structures: findings from the International Tobacco Control Policy Evaluation (ITC) Project
  1. Ce Shang1,
  2. Frank J Chaloupka1,2,
  3. Nahleen Zahra2,
  4. Geoffrey T Fong3,4
  1. 1Health Policy Center, Institute for Health Research and Policy, University of Illinois at Chicago, Chicago, Illinois, USA
  2. 2Department of Economics, University of Illinois at Chicago, Chicago, Illinois, USA
  3. 3Department of Psychology, University of Waterloo, Waterloo, Canada
  4. 4Ontario Institute for Cancer Research, Toronto, Ontario, Canada
  1. Correspondence to Dr Ce Shang, Postdoctoral Research Associate, Health Policy Center, Institute for Health Research and Policy, University of Illinois at Chicago, 1747 W. Roosevelt Rd, Chicago, IL 60608, USA; cshang{at}uic.edu

Abstract

Background The distribution of cigarette prices has rarely been studied and compared under different tax structures. Descriptive evidence on price distributions by countries can shed light on opportunities for tax avoidance and brand switching under different tobacco tax structures, which could impact the effectiveness of increased taxation in reducing smoking.

Objective This paper aims to describe the distribution of cigarette prices by countries and to compare these distributions based on the tobacco tax structure in these countries.

Methods We employed data for 16 countries taken from the International Tobacco Control Policy Evaluation Project to construct survey-derived cigarette prices for each country. Self-reported prices were weighted by cigarette consumption and described using a comprehensive set of statistics. We then compared these statistics for cigarette prices under different tax structures. In particular, countries of similar income levels and countries that impose similar total excise taxes using different tax structures were paired and compared in mean and variance using a two-sample comparison test.

Findings Our investigation illustrates that, compared with specific uniform taxation, other tax structures, such as ad valorem uniform taxation, mixed (a tax system using ad valorem and specific taxes) uniform taxation, and tiered tax structures of specific, ad valorem and mixed taxation tend to have price distributions with greater variability. Countries that rely heavily on ad valorem and tiered taxes also tend to have greater price variability around the median. Among mixed taxation systems, countries that rely more heavily on the ad valorem component tend to have greater price variability than countries that rely more heavily on the specific component. In countries with tiered tax systems, cigarette prices are skewed more towards lower prices than are prices under uniform tax systems. The analyses presented here demonstrate that more opportunities exist for tax avoidance and brand switching when the tax structure departs from a uniform specific tax.

  • Taxation
  • Price
  • Economics
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