The pass-through of excise taxes to market prices of heated tobacco products (HTPs) and cigarettes: a cross-country analysis

Estelle Dauchy () and Ce Shang ()
Additional contact information
Estelle Dauchy: Campaign for Tobacco Free Kids, International Research
Ce Shang: The Ohio State University Wexner Medical Center

The European Journal of Health Economics, 2023, vol. 24, issue 4, No 8, 607 pages

Abstract: Abstract Background and Objective The market for heated tobacco products (HTPs) has grown markedly in recent years, and many governments have started to tax HTPs to regulate their use. To evaluate the impacts of HTP taxes on tobacco use behaviors and health consequences, we first need to assess if they effectively raise HTP prices in a tax system that also taxes cigarettes. This study jointly evaluates the pass-through of taxes to prices of HTPs and cigarettes. Data and Methods We use a unique database on statutory HTP and cigarette taxes and retail prices of Marlboro-branded heated tobacco units and cigarettes from 2014 to 2021, developed by the Campaign for Tobacco Free Kids, in all countries where HTPs are sold. To estimate the pass-through of taxes to prices, we employ a seemingly unrelated regressions model. We also use an event study to test the impact of introducing HTPs to cigarette markets, as well as amending tax codes to include HTPs, on prices and price gaps. Conclusions and Policy Implications Currently, the debate over whether HTPs should be taxed in comparison with cigarettes considers their potential harm reduction impact, and most countries tax HTPs at much lower rates than cigarettes in order to keep HTP prices lower than cigarette prices. However, the direct pass-through rate of HTP taxes to prices is several times smaller than that of cigarettes, resulting in very similar unit prices of HTPs and cigarettes. Further, while cigarette taxes are over-shifted to cigarette prices, HTP taxes are under-shifted to HTP prices, suggesting that tax gaps between the two products does not translate to price gaps. The results overall suggest that the lower taxes on HTPs do not lead to lower prices as compared to cigarettes and are unlikely to incentivize cigarette smokers to transition to HTPS for lower costs. Under this scenario, taxing both products equivalently could be an option to raise additional tax revenue.

Keywords: Heated tobacco products; Excise tax; Tobacco; Cigarette tax; Pass-through; Pricing strategies (search for similar items in EconPapers)
JEL-codes: H20 H26 H32 H71 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s10198-022-01499-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:eujhec:v:24:y:2023:i:4:d:10.1007_s10198-022-01499-x

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/10198/PS2

DOI: 10.1007/s10198-022-01499-x

Access Statistics for this article

The European Journal of Health Economics is currently edited by J.-M.G.v.d. Schulenburg

More articles in The European Journal of Health Economics from Springer, Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().