The 13th World Conference on Tobacco OR Health

In the Latin-American region, Mercosur countries show the highest tobacco use prevalence rates. Although the evidence shows that increasing tobacco taxes is the single most cost-effective measure to reduce tobacco consumption, increasing tobacco taxes is not widely implemented in the region. One of the reasons is that governments fear that increasing taxes will not only reduce tobacco consumption but will also reduce tax revenues. This presentation shows the results of studies conducted in Mercosur countries showing that rather than decreasing, fiscal revenues will increase as a result of increasing tobacco taxes.

Based on an analysis of tobacco demand, studies calculated the price and income elasticity of demand. The estimates for price-elasticity of demand show that an increase of 10% in cigarette prices will cause a reduction in cigarette consumption of about 4% to 5% in Argentina, Brazil, Chile and Uruguay and of 8% in Bolivia. The estimates for income-elasticity of demand show that an increase of 10% in income causes an increase in cigarette consumption of 2% in Chile, 5% in Argentina, 6% in Uruguay and 7% in Bolivia.

Based on those results, the studies concluded that an increase of 10% in tobacco excise taxes that increase tobacco prices will cause an increase in fiscal revenues at least in the short run in all countries but Brazil –for which data did not allow the generation of reliable estimates. These results are compatible with previous evidence collected by World Bank experts in other regions of the world.