• economics
• taxation
• socioeconomic status

Despite extensive evidence from many countries showing that substantially increasing prices of tobacco through taxation is the single most effective way to reduce tobacco use,1 policymakers have been hesitant to adopt such policies. One common argument against higher tobacco taxes is that they may be regressive. This argument relies on a narrow definition of regressivity based on comparing the tax burden—the ratio of taxes paid to income—for different income groups.

Tax regressivity can be defined in multiple ways, with the two most common definitions based on the tax burden or the ‘ability to pay’ (also known as the ‘accounting definition’),2 or based on welfare. The flaw of evaluating regressivity based solely on tax burden by income group is that it does not consider the behavioural responses to taxation, as consumers change their consumption in response to higher taxes. Alternatively, the welfare-based approach incorporates these effects and accounts for the impact of a tax change increase on …