Extended cost-benefit analysis of tobacco taxation in Brazil

Brazil has experienced a persistent and substantial reduction in the prevalence of smoking in the population since 2006 due to increased taxes on tobacco and other tobacco control policies. Despite the effectiveness of these measures, however, the socioeconomic costs of smoking are still very high. Tobacco taxation in Brazil plays an important role among the measures adopted to curb tobacco use.

The study combines data from the National Household Sample Survey of 2008 and the National Health Survey of 2013 and applies cross-section, pooled, and probit estimations, to estimate price elasticities of tobacco consumption by distinct population cohorts. The paper presents a comprehensive cost-benefit analysis resulting from a one-time tax increase on manufactured cigarettes using estimated conditional price elasticity of cigarette consumption and probability of smoking by income and age quartiles.

Each 10% price increase (BRL 0.54), due to higher tobacco taxes, reduces cigarette consumption by about 5%, and for poor smokers, it would lead to net income gains by about BRL 39.00 per month (in 2019 values). The highest net income effects were observed for the younger, aged between 15 and 29 years, and for middle-aged individuals, between 40 and 59 years old. Higher tobacco taxes lead to lower medical expenses on tobacco-related diseases and a longer, healthier and more productive life. Most importantly, this policy is progressive, as its economic effects are stronger for the poorer than for the richer according to the income quartiles.

A tax increase that rises cigarette prices generates significant social benefits by reducing tobacco spending and medical expenses on tobacco-related diseases and raising future years of life and net income. The total benefits for the individual and the society go way beyond the public finance improvement.