Effects of cigarette tax on cigarette consumption and the Chinese economy

Abstract

OBJECTIVES: To analyse a policy dilemma in China on public health versus the tobacco economy through additional cigarette tax. METHODS: Using published statistics from 1980 through 1997 to estimate the impact of tobacco production and consumption on government revenue and the entire economy. These estimates relied on the results of estimated price elasticities of the demand for cigarettes in China. RESULTS: Given the estimated price elasticities (-0.54), by introducing an additional 10% increase in cigarette tax per pack (from the current 40% to 50% tax rate), the central government tax revenue would twice exceed total losses in industry revenue, tobacco farmers' income, and local tax revenue. In addition, between 1.44 and 2.16 million lives would be saved by this tax increase. CONCLUSIONS: Additional taxation on cigarettes in China would be a desirable public policy for the Chinese government to consider.