December 30, 2011
Smoking accounts for 1 in 5 adult male deaths in India and 1 in 20 female deaths ages 30-69, but there is currently a scarcity of research on how taxation of cigarettes and bidis – thin, handrolled cigarettes – would affect tobacco use patterns in India. A recent NBER working paper by CDDEP post-doctoral scholar Arindam Nandi and co-authors attempts to address this gap by analyzing the price elasticities associated with both bidi and cigarette purchases.
The research supports the idea that increasing the price of tobacco products is an effective means to reduce their use. In particular, the authors find that taxing cigarettes in India may be a more effective intervention than previously thought. This is significant, since cigarette smoking is associated with substantially higher rates of mortality (compared to non-smokers, risk of dying increases by 80% with cigarette smoking, 30% with bidi smoking). The authors also find an association between socioeconomic status and responsiveness to price changes, with poorer households being more responsive to price changes in tobacco products.
Of the current situation in India, the authors note:
Increasing tobacco prices has been found to be the single, most-effective method to reduce smoking. Yet, bidis, the most common form of smoked tobacco in India, are largely untaxed, while cigarettes are taxed at about 40 percent of retail price, well below the 65-80 percent rate noted by the World Bank in countries with effective tobacco control policies... Moreover, low and stagnant tax rates have occurred in a period in which all tobacco products have become more affordable with income growth. Like many taxation policies in India, tobacco taxation reflects years of accumulated influences, lobbying, exemptions, and in some cases, even attempts to do social good. The current result is a complex, even chaotic tax structure on smoked tobacco.
Read the full paper here, and the authors synopsis on vox.
Image credit: Flickr: Cold Cream Coffee
