• Illegal tobacco products
• Taxation
• Public policy
• Price
• Economics

The tobacco industry claims that increases in tobacco tax will not discourage people from smoking because smokers will simply substitute taxed cigarettes with smuggled untaxed cigarettes.1 The experience in Hong Kong suggests that smuggled cigarettes are eating into some of the taxed cigarette market share, as the industry suggests. However, despite this increase in the illicit market, higher tobacco tax does effectively reduce total tobacco consumption.

Hong Kong is an ideal place to test the impact of increasing cigarette duties on smuggling as it does not have any domestic tobacco manufacturing and there are few exemptions for duty on cigarettes.2 Hence, nearly all cigarettes legally available in the market are …