Empirical research and analysis on cigarette consumption, excise taxation and government revenues

Abstract

Tobacco use represents the largest preventable cause of serious diseases worldwide. Considering that cigarette consumption account for the overwhelming percentage of total tobacco consumption, the major part of the thesis is devoted to the study of cigarette smoking patterns and economics. Specifically, this dissertation studies the tobacco market in the European Union focusing on the determinants of cigarette consumption, government revenues accrued from cigarette excise taxation and the revenue analysis of stakeholders involved in tobacco supply chain. Excise taxation is undeniably the most cost-effective policy tool for a government in order to achieve both health and economic goals. In particular, the inelasticity of cigarette demand has implications for the impact of tax increases on cigarette consumption and tax revenues. The Laffer Curve is a tax theory which discusses the relationship between tax rates and the amount of tax revenues collected by governments, suggesting an optimal rate of taxation for each economy. Acknowledging the optimal tax rate which maximizes the revenue collection is valuable for every government so as to pursue an effective policy strategy. Though, the level of cigarette substitution by other tobacco or nicotine products and the volume of illicit cigarette market are fundamental factors influencing the optimal point with the highest revenue streams of each country. Through this framework, the present thesis extends the research upon the prevailing smoking patterns across the European Union, investigating several determinants affecting smoking behaviour, such as cigarette affordability, implementation of tobacco control policies and some socio-economic characteristics – i.e. unemployment rates and educational level. Moreover, the empirical analysis provides useful evidence on further possible factors associated to smoking habit, thus offering constructive insights for future research. Finally, cigarette excise taxation has multiple implications not only in public health and government revenues but in the tobacco industry as well. For a thorough evaluation of a tax strategy imposed on cigarette consumption, all stakeholders involved in the tobacco supply chain should be considered. Therefore, an analysis of stakeholders’ revenue shares with comprehensive empirical data is also provided.