(Ranson et al. 2002). However, analyses of cost-effectiveness tend to focus on the perspective of the public sector provider or financing entity and leave aside the costs borne by individual households.

A recurrent policy concern is the potentially regressive effects of tobacco taxes. Lower-income households usually allocate larger shares of their budgets to purchasing tobacco products. Hence, relative to wealthier households, low-income households face larger negative shocks to budgets when taxes translate into higher tobacco prices. However, this presents only a partial picture of the more complex effects of raising taxes on tobacco. Several benefits of tobacco taxes arise via improvements in people’s medical condition and productivity. Such gains may contribute to offsetting the direct negative price shock. The net impact on household welfare of raising taxes on tobacco involves the aggregation of these costs and benefits. Furthermore, it is mediated by the degree of pass-through of the tax burden to consumer prices, the responsiveness of consumers to the price shock, and the initial distribution of tobacco consumption across population groups. The medium- and long-term effects will likely differ from the immediate short-term outcomes if the benefits and behavioral responses take time to kick in.

While the net effect remains an empirical question, a growing body of research within countries supports the conclusion that the benefits of raising taxes on tobacco offset the costs. Denisova and Kuznetsova (2014) and Verguet et al. (2015) find that, across the population and, specifically, among low-income groups, the future benefits of nonsmoking outweigh the losses attributed to tobacco taxes. Other country-specific studies based on household microdata find that the distributional incidence of raising taxes on tobacco can be progressive, most often because of the benefits derived from averted medical expenses (Fuchs and Del Carmen 2018; Fuchs, Del Carmen, and Genoni 2018; Fuchs, Del Carmen, and Mukong 2018; Fuchs, and Matytsin 2018; Fuchs and Meneses 2017a, 2017b, 2018; Fuchs, Orlic, and Cancho 2019).

# **d. The price elasticity of tobacco consumption**

Ultimately, the distributional impact of raising taxes on tobacco—whether the poor are more heavily burdened or see the greatest benefits—depends on the responsiveness of low- and highincome consumers to the price changes in tobacco (WHO 2011a). An extensive body of evidence consists of estimates of the relationship between tobacco prices and consumption. The price elasticities of demand express the sensitivity of consumers to changes in tobacco prices and therefore become crucial in calibrating the welfare and distributional effects of tobacco tax systems. Such relationships, however, are not homogeneous across countries and income groups. In high-income countries, raising the price of cigarettes by 10 percent leads to an estimated reduction of 4 percent in the demand for cigarettes (World Bank 1999). An equivalent price change in low- and middle-income countries would likely result in a 6 percent average fall in demand (IARC 2011). Regional and country-specific estimates are also extensive. Meta-studies on the United States estimate tobacco price elasticity at between zero and −0.47 (Chaloupka and Grossman 1996; Lewit and Coate 1982). Gallus et al. (2006) find an average elasticity of −0.46 in European countries. Empirical results on Latin America conclude that both short- and longterm price elasticities of cigarettes fall below unity (in absolute value), and below −0.50 for higher-income countries in the region (Guindon, Paraje, and Chaloupka 2015).

Age and income are key factors in determining the price elasticities of tobacco. It is often argued that younger individuals and low-income groups are more responsive to price changes relative Page 5