The impact of tobacco tax reforms on poverty in Mexico

Luis Huesca, Abdelkrim Araar (), Linda Llamas () and Guy Lacroix
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Abdelkrim Araar: Université Laval
Linda Llamas: Universidad Estatal de Sonora, UES

SN Business & Economics, 2021, vol. 1, issue 10, 1-18

Abstract: Abstract This paper investigates the impact of increasing the tobacco taxes on the poverty rate in Mexico. Unlike most LMIC countries, the prevalence of smoking in Mexico is higher among the well-off than among the poor. Yet, tobacco tax rates in Mexico are lower than those in most LMIC countries. There is room, thus, to implement tax reforms and compensating policies to mitigate their impact on the poor. Our analysis is based on the stochastic dominance approach. More precisely, several tax reforms are analyzed through the so-called Consumption Dominance curves. In addition, the reforms are assumed to be revenue neutral and to give rise to compensating subsidies on specific goods. Our results show that if the Mexican government were to implement a WHO-type reform, poverty among households with at least one smoking member would increase by 2.6 % points. Yet, the deleterious effects are entirely mitigated by price subsidies on staple foods.

Keywords: Tobacco taxation; Impact analysis; Excise taxes; Poverty; Stochastic dominance (search for similar items in EconPapers)
JEL-codes: D31 D63 I32 I38 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s43546-021-00141-x

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