Effect of cigarette tax increase on cigarette consumption in Taiwan

This study evaluates the effect of a 5 New Taiwan Dollar (NTD 5) Health and Welfare Tax increase on the consumption of domestic and imported cigarettes and cigars.

Using statistics published annually from 1971 through 2000, we set up a model based on the Central Bureau of Statistics (CBS) demand model to estimate price and expenditure elasticity coefficients of cigarettes and cigars.

Our results showed that the price elasticity coefficients for domestic and imported cigarettes were -0.644 and -0.822. The consumption of imported cigarettes was reduced by 7.51 packs per capita, and the consumption of domestic cigarettes was reduced by 15.21 packs per capita. Total per capita consumption of cigarettes was reduced by 22.72 packs (18%).

From the public health and financial perspectives, the increase in this excise tax on tobacco to the Taiwan government will have significant effect in reducing cigarette consumption; it will also generate additional tax revenues.