Estimating Health Tax Capacity, Effort, and Potential: Evidence from a Global Panel

Sanjeev Gupta, Joao Jalles and Ainhoa Petri-Hidalgo
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Sanjeev Gupta: Center for Global Development
Ainhoa Petri-Hidalgo: Center for Global Development

No 727, Working Papers from Center for Global Development

Abstract: Noncommunicable diseases—driven by tobacco use, harmful alcohol consumption, and high-sugar diets—account for over 70 percent of global deaths and impose annual economic losses exceeding US $514 billion. Excise taxes on these health-harming products offer a dual benefit of reducing consumption and raising public revenue, yet performance varies widely across countries. This paper applies stochastic frontier analysis to a global panel of 97 IMF member states to estimate maximal feasible excise tax performance for tobacco, beer, spirits, and sugar-sweetened beverages (SSBs), conditioning on GDP per capita, consumption patterns, demographics, and governance indicators. Given data availability, we estimate a revenue-based frontier for tobacco and rate-based frontiers (expressed as a share of retail price) for alcohol and SSBs. Tax-effort scores reveal that countries collect on average just 0.4 percent of GDP in tobacco excise revenue—despite a feasible capacity of 1.5 percent—indicating an untapped fiscal gap of 1.1 percent of GDP. For beer, spirits, and SSBs, countries apply only 35 percent, 25 percent, and 15 percent, respectively, of their feasible excise rates. We introduce a four-quadrant diagnostic framework to classify countries by tax collection and effort and identify tailored policy responses. These findings have major implications for health financing, fiscal reform, and technical assistance, particularly in low- and middle-income countries.

Keywords: sin taxes; stochastic frontier analysis; tax capacity; excise revenue; health-tax efficiency (search for similar items in EconPapers)
JEL-codes: C23 D61 H2 H71 I1 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2025-09-15
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Persistent link: https://EconPapers.repec.org/RePEc:cgd:wpaper:727

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