Those legislative measures which came into force in late 2012 including (1) tobacco advertising ban — on September 16, 2012, (2) introduction of large (50% of the pack surface area) graphic health warning on tobacco packaging — on October 4, 2012, (3) smoke-free policies in restaurants and other public and workplaces — on December 16, 2012, have resulted in significant decrease of cigarette sales in Ukraine in 2013.[24]

# **c. Tobacco taxes**

Prohibiting certain practices (e.g., tobacco marketing or indoor smoking) has a limited effect because after such practices are prohibited, they cannot be prohibited further. Increases in tobacco excise taxes are not subject to such constraints; excise taxes can continue to be increased, even if the tax rate is already very high.[25] Tobacco taxation is considered one of the most efficient measures to reduce tobacco consumption; as a secondary benefit, they also increase government revenue.<sup>5</sup> [8] Because both effects are desirable from a policy standpoint, the use of taxes is considered to be economically justified. Additionally, the higher price elasticity of young people makes taxes a good way to fight tobacco use because taxes will significantly reduce consumption in the long run.

Institutions such as the Inter-American Development Bank (IADB 2010), WHO (2008), the International Agency for Cancer Research (IARC 2011), and the World Bank (1999) and authors such as Levy et al. (2014) have associated price increases with significant declines in tobacco consumption.[8,26–29] These authors, as well as the WHO, estimate that higher taxes are responsible for almost half the decline in smoking.[30] However, the effects of these policies mainly depend on the type of taxes. For example, ad valorem taxes are based on prices; so, tobacco companies can potentially avoid higher taxes by cutting on providers and setting lower prices. For this reason, consumption levels and tax revenue depend on the industry pricing strategy. Alternatively, specific excise taxes establish a fixed tax amount, although the tax amount must be adjusted periodically for inflation to accomplish their mission and are associated with the risk of encouraging contraband sales.[5] The taxation system in Ukraine, as in other countries, uses both types of tobacco taxes, that is, specific and ad valorem excise.

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

The extent of price elasticity is crucial in calibrating the effect of taxation systems because it determines the sensitivity of demand to a change in tobacco prices. In general, tax increases generate larger shifts of tobacco purchase and consumption among low- and middle-income populations than in high-income groups (WHO 2015a). [5] There is an extensive literature estimating the relationship between tobacco prices and consumption. Guindon (2013) provides a broad review of 26 international studies; a few should be mentioned directly.[31] Chaloupka and Grossman (1981) and Lewit and Coate (1981) estimate the elasticity among the under-18 population in the United States at, respectively, −1.44 and −1.31.[33, 34] Among adults ages 18 years or older, Chaloupka (1991) and Lewit and Coate (1981) estimate the elasticity in the United States at between −0.27 and −0.42, respectively.[34, 35] For all 52 countries in the European region, Gallus et al. (2006) estimate a price elasticity of −0.46 using national yearly aggregated data.[35] For Hungary, the price elasticity is estimated at between −0.44 and −0.37 and, for the United Kingdom, at −0.5.[37, 38] For Poland and Turkey, tobacco price elasticities

> 5 Tobacco tax increases have also been associated with a rise in contraband and illegal tobacco sales, reducing the expected increase in government revenue (Jha and Chaloupka 2000) [56]

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