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NOT PEER REVIEWED Thanks for Mr. Middleton's information that there are local tobacco
manufacturers in Hong Kong. I made a mistake when reading the materials. I
have amended this in the updated version.
It does not affect the analysis as the government taxes based on
number of cigarettes sold rather than manufactured, but I sincerely
appreciate your valuable advice.
For the analysis part, it is not easy...
For the analysis part, it is not easy to have an "official figure" of
illicit cigarette consumption. During the peer review stage, I indeed have
discussed with the reviewers which source is preferable. I adopt the
figures provided by the tobacco sellers, but also list the Euromonitor a
reviewer suggested for readers' reference. Noted that these figures lead
to the same result, as the total tobacco consumption (tax + illicit) drops
after the tax increasing, which rebuts the traditional economic view that
tobacco duty is not an effective method because of smuggling.
It is also not an easy job to determine how much price is affordable
for people esp youngsters. However when we find out that smuggling shall
not be a concern when the government increases the tax rate, it is clear that
tobacco duty is a powerful tool to control cigarette consumption.