# **1. Introduction**

Tobacco is one of the major causes of noncommunicable disease in the world. It has been associated with many types of cancers, including lung, oral, laryngeal, pancreatic, kidney, cervical, and acute myeloid.[1] Tobacco consumption is also associated with respiratory problems such as chronic respiratory symptoms, tuberculosis, influenza, pneumonia, other infections, chronic bronchitis, emphysema, and asthma. Furthermore, tobacco consumption has been proven to influence cardiovascular diseases, such as aneurysms, strokes, and coronary heart disease, as well as adverse reproductive and developmental effects, such as low birthweights, congenital malformations in babies, and complications in pregnancy, along with sexual dysfunction among men.[1, 2] In Moldova, the average age of individuals when they start smoking is slightly less than 18 years, and the average smoker spends over 20 years consuming cigarettes. Aside from the health effects, tobacco has significant economic impacts because it accounts for approximately 1 percent of monthly household budgets and is a relevant factor in the expenditures on health treatments. This paper presents estimates of the tobacco price elasticity in Moldova and the distributional effects of a tobacco tax increase across income deciles.

Moldova is a small lower-middle-income country, with a population slightly above 3.5 million people, and a GDP per capita slightly below US$2,000. It is one of the poorest countries in Europe, with a poverty rate of 9.6 percent measured under the national poverty line with a GINI coefficient of 0.27.[3] The main causes of death in Moldova are diseases of the circulatory system, followed by cancers and diseases of the digestive system. Many of these deaths can be attributed to heavy alcohol and tobacco consumption: 57.6 percent of total male mortality and 62.3 percent of female mortality in 2010 could be attributed to smoking-related causes, while 18.8 percent of male mortality and 13.7 percent of female mortality were related to alcohol consumption.[4] Based on the current level of adult smoking in Moldova, premature deaths attributable to smoking are projected to be as high as 397,000 among the 794,000 smokers alive today.[5] The majority of these deaths are a result of respiratory diseases, strokes, heart disease, and lung cancer.[5] Life expectancy in Moldova is 10 years lower than the European Union (EU) average, and life expectancy is five–six years less among men than women. The health care costs associated with tobacco make up 7.6 percent of the total health expenditures in the Unites States.[2] The negative health and economic impacts of tobacco highlight the importance of tobacco tax policies that could reduce consumption in Moldova.

Tobacco taxation is one of the best ways to control tobacco.[6] This is so because the taxation effectively increases government revenue and decreases consumption, especially among that younger and lower-income groups of the population as these exhibit higher income elasticities. Because there are no estimates of tobacco price elasticities for Moldova in the literature, the study, as a first step, estimated tobacco price elasticity using four cohorts of household surveys. Next, the distributional impact of a rise in tobacco prices caused by a tax increase was estimated. The effect of higher prices on income because of the higher cost of tobacco consumption was evaluated, and, then, the effect of a reduction in medical expenditures because of the reduction in tobacco use was analyzed. The study finds that an increase in tobacco taxes has a progressive impact, benefiting lower-income groups in the population. The paper continues as follows: section 2 analyzes the literature; section 3 describes the estimation model; section 4 shows the results; section 5 presents a discussion; and section 6 concludes.

# **2. The Literature**

In the last century, about 100 million deaths were related to tobacco use.[7] If current trends were to remain constant, about 1 billion people could die from tobacco-related diseases during this century.[8] In Moldova, 2