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to consumers in the form of higher prices, and consumers will respond by consuming less of the taxed good. However, manufacturers may decide that they can make more profit by paying some of the tax themselves than by raising prices for consumers. As a result, not all of the tax is necessarily passed along to consumers. In some cases, manufacturers pass along a greater portion of the tax for some products than for others. For example, tobacco companies may pass through a high proportion of an excise tax on higher-priced cigarettes while passing through a lower proportion of the tax on lower-priced cigarettes (Gilmore et al. 2013). In doing so, they hope to encourage price-insensitive consumers who were already buying higher-priced cigarettes to continue doing so, while encouraging price-sensitive consumers to shift to relatively inexpensive cigarettes rather than quit smoking altogether. This switching may have happened to some extent in Saudi Arabia. In the survey conducted in Jeddah, 29.8 percent of smokers said they switched to cheaper brands after the 100 percent tobacco excise tax was implemented (Alghamdi et al. 2020). A large economic literature has consistently shown that tobacco taxes are regressive, meaning that low-income people pay a greater percentage of their income in tobacco taxes than high-income people. This is a common objection to tobacco taxes. However, the health effects and long-term economic effects of these taxes should be considered as well as their immediate financial impact. A modeling study in Colombia finds that the largest health gains resulting from a tobacco tax would accrue to the bottom two income quintiles (James et al. 2019). A modeling study in Ukraine concludes, “Although tobacco taxes are often criticized for being regressive in the short run, [taking into account] a more comprehensive scenario that includes medical expenses and working years, the benefits of tobacco taxes far exceed the increase in tax liability, benefitting in large measure lower income households” (Fuchs and Meneses 2017). The short-term financial regressivity of tobacco taxes can be ameliorated by dedicating some of the revenue to “targeted programs that help low-income smokers quit” and “other programs targeting the poor” (Farrelly, Nonnemaker, and Watson 2012). E-cigarette taxes reduce the use of e-cigarettes but may raise the consumption of standard cigarettes (Pesko, Courtemanche, and Maclean 2019; Pesko et al. 2018; Saffer et al. 2020) (table 7.6). This finding creates a challenge for public health authorities: the long-term health effects of e-cigarettes are unknown, and there is widespread agreement that their use should not be encouraged. However, e-cigarettes appear to be substitutes for conventional cigarettes, which are likely more harmful. The dilemma for policy makers is how to devise interventions that discourage the initiation of e-cigarette use without simultaneously disincentivizing veteran smokers from switching to e-cigarettes. Studies have shown that other tobacco control programs are also effective (table 7.7). Smoking restrictions in workplaces, comprehensive bans on tobacco advertising and promotion, smoking cessation programs, and school-based
TABLE 7.6 Evidence
of effectiveness of e-cigarette tax
INTERVENTION
RESEARCH FINDINGS
REFERENCES
E-cigarette tax
E-cigarette taxes reduce the use of e-cigarettes (with greater effects on youth than on older adults) but may increase consumption of traditional cigarettes.
Levy et al. 2017b; Pesko, Cortemanche, and Maclean 2019; Pesko et al. 2018; Saffer et al. 2020
Source: Original compilation for this publication.
