**Table 7 – Baseline Descriptive Results, Household Survey 2015**

|_Indicator_|_Decile 1_|_Decile 2_|_Decile 3_|_Decile 4_|_Decile 5_|_Decile 6_|_Decile 7_|_Decile 8_|_Decile 9_|_Decile 10_|
|---|---|---|---|---|---|---|---|---|---|---|
|Household (HH) Expenditure, (US$)|185|226|247|247|259|278|319|329|<br>382|<br>568|
|PerCapita HH Expenditure. (US$)|45|59|68|77|86|96|109|123|<br>147|<br>230|
|<br>Tobacco Expenditure, %*|0.68|<br>0.54|0.62|0.65|0.69|0.78|0.58|0.69|<br>0.68|<br>0.51|
|<br>Households that smoke, %|19|16|15|16|13|12|13|11|<br>15|<br>19|
|Woman head, %|29|31|31|34|41|46|42|45|<br>46|<br>48|
|Average age, head|52|54|57|58|58|58|56|57|<br>54|<br>48|
|Household size|3.53|<br>3.14|2.84|2.58|2.35|2.22|2.25|2.10|<br>2.04|<br>1.85|

* Proportional to total consumption in each decile.

# **5. Results**

After obtaining the baseline results described in table 7, the study estimated the effect of the tax increase on prices and medical expenditures, aggregating these two effects into a single measure. It used the three scenarios in the tobacco price elasticity, the lower-bound, medium-bound, and upper-bound scenarios presented in table 3. These three scenarios allow an understanding of how results might change under various assumptions.

# **Tobacco price increase**

As a first step, the income changes that arise from the increase in tobacco prices are estimated for each income decile based on low-, medium-, and upper-bound elasticity. Using equation (4) and the data illustrated in tables 4 and 7, the study calculated the effects of the tobacco price increase. For example, given the lower-bound − elasticity ( 0.13) in table 4, the proportion of tobacco expenditure among the first decile (2 percent) in table 7, and a price increase of 25 percent, the increase in expenditure can be gauged at 0.11 percent. This represents a loss in welfare because consumers would devote a higher proportion of their incomes to purchasing the same amount of tobacco, thereby reducing the consumption of other goods. The results among all income deciles and elasticity scenarios are shown in table 8.

**Table 8– The Direct Effect of a Price Increase on Taxes, %**

|_Price shock_|_Decile 1_|_Decile 2_|_Decile 3_|_Decile 4_|_Decile 5_|_Decile 6_|_Decile 7_|_Decile 8_|_Decile 9_|_Decile 10_|
|---|---|---|---|---|---|---|---|---|---|---|
|Complete pass-through|-0.17|-0.14|-0.16|-0.16|-0.17|-0.20|-0.15|-0.17|-0.17|-0.13|
|Low-bound elasticity|-0.11|-0.10|-0.12|-0.13|-0.15|-0.17|-0.13|-0.16|-0.16|-0.12|
|Medium elasticity|-0.06|-0.07|-0.08|-0.09|-0.10|-0.12|-0.09|-0.12|-0.12|-0.09|
|Upper-bound elasticity|-0.02|-0.04|-0.04|-0.05|-0.06|-0.07|-0.05|-0.08|-0.08|-0.05|

_Source:_ Based on data of the 2015 household budget survey. _Note:_ The table shows the share of total consumption for each decile. Complete pass-through refers to elasticity equal to zero; consumers pay all the increased prices.

Across the lower- and medium-bound scenarios, the direct effect of the tobacco tax is a welfare loss, but, in none of the cases does the shock seem to be regressive. Meanwhile, in the case of the upper-bound scenario, the tax increase seems to have positive effects on income, as individuals react strongly to price increases by reducing consumption (figure 3). In the lower-, medium-, and upper-bound elasticity scenarios, the effect of the price increases is progressive, affecting the upper-income groups in a larger proportion. To show the effect of the elasticities on prices, table 8 includes estimates of a complete pass-through scenario, whereby the increase in prices is completely passed on to consumers without a reduction in consumption. Only in this case is the price shock regressive, affecting the lower-income deciles to a greater degree.

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