nearly 4.0 years among women and 4.3 years among men.[47] There would also be about 379,000 life days lost, which is more than a thousand years.<sup>7</sup> The research represented in this paper takes advantage of the current literature on health care costs. It draws information and ideas from Marquez et al. (2017) and others who estimate the long-term health care costs of tobacco in Ukraine and adds new estimates and measures of the incidence of disease and of income distribution.[54] From a methodological standpoint, this paper follows the methods described by Fuchs and Meneses (2017).[48]

# **f. Costs and benefits that are not included**

Some well-researched costs and benefits are not covered in this paper. Secondhand smoke has been shown to be an important societal cost of smoking, affecting the health of adults and children.[49] In one example, from the state of Indiana, the health-related costs of secondhand smoke have been estimated at more than US$1.3 billion yearly, US$201 per-capita. However, this paper does not include the cost of secondhand smoke in the analysis because of the lack of detailed information required about smoking within households or the workplace.

As discussed earlier, one potential channel in which tobacco taxes can improve income inequality is the possible use of tax revenues on progressive policies such as direct income transfers or services. These policies might involve expansions in health care, social welfare, and education expenditures. Although earmarking tax revenues for specific projects -such as health care, social welfare or education- is a common practice in some countries, this paper does not include them in the assessment as they depend on a myriad of factors that include political decisions. Therefore, this paper covers only benefits that directly arise from tobacco tax policy.

# **3. Model**

The impact of the tobacco tax in Ukraine is estimated using a social welfare framework similar to the framework applied elsewhere in the literature.[12,50] The potential changes in household welfare induced by an increase in tobacco taxes is estimated by considering three factors: (1) the rise in tobacco expenditures because of the tax increase, (2) the reduction in medical expenses because of lower tobacco consumption, and (3) the change in incomes because of reduced mortality, leading to additional work years.<sup>8</sup> The aggregated effect of the tax policy is estimated as follows: Income effect = change in tobacco expenditure (A) + lower medical expenses (B) + rise in income (C) (1) The basis of the analysis rests on the Ukrainian Household Living Conditions Survey 2012. The survey is designed to measure general patterns of expenditure, including expenditure in tobacco products. Data limitations do not permit a simulation of the exact price increases by brand, but this may be accomplished using the aggregate prices paid by households.

A partial equilibrium model allows the distributional effects of the tobacco tax to be assessed, resulting in an estimation of the first-order effects of these policies. A partial equilibrium approach is then used, and the change in prices is evaluated, mainly by relying on household expenditure patterns. This decision implies that only the

> 7 Days lost refer to years of life lost (YLL) because of premature mortality. Another indicator is years lost because of disability (YLD) among people living with poor health and its consequences. Usually disability-adjusted life years = YLL + YLD.

> 8 Other studies have also evaluated productivity loss, disability costs, externalities, and so on. Because of the availability of relevant data, this paper focuses solely on medical expenses and income changes associated with shifts in mortality.

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