The health, financial and distributional consequences of increases in the tobacco excise tax among smokers in Lebanon

Abstract

Tobacco use is a significant risk factor for the leading causes of death worldwide, including cancer, heart disease and stroke. Most of these deaths occur in low- and middle-income countries, where tobacco-related deaths are also rising rapidly. Taxation is one of the most effective tobacco control measures, yet evidence on the distributional impact of tobacco taxation in low- and middle-income countries remains scant. This paper considers the financial and health effects, by socio-economic class, of increasing tobacco taxes in Lebanon, a middle-income country. An Almost Ideal Demand System is used to estimate price elasticities of demand for tobacco products. Extended cost-effectiveness analysis (ECEA) methods are applied to quantify, across quintiles of socio-economic status, the health benefits gained, the additional tax revenues raised, and the net financial consequences for households from a 50% increase in the price of tobacco through excise taxes. We find that demand for tobacco is price inelastic with elasticities ranging from -0.32 for the poorest quintile to -0.22 for the richest quintile. The increase in tobacco tax is estimated to result in 65,000 (95% CI: 37,000-93,000) premature deaths averted, 25% of them in the poorest quintile, $300M ($256-340M) of additional tax revenues, 12% borne by the poorest quintile, $23M ($13-33M) of out-of-pocket spending on healthcare averted, 36% of which accrue to the poorest quintile, 9% to the richest. These savings would be associated with 23,000 (13,000-33,000) poverty cases averted (63% in the poorest quintile). Increasing tobacco taxes would lead to large financial and health benefits, and would be pro-poor in health gains, savings on healthcare, and poverty reduction.