April 18, 2017, WBG/IMF Spring Meetings, Washington, DC The distributional impact of tobacco taxes on household health and finances in rich and poor smokers Stéphane Verguet Email: verguet@hsph.harvard.edu April 18, 2017, WBG/IMF Spring Meetings, Washington, DC

Tax is the single most effective tobacco control policy France: cigarette consumption & inflation-adjusted price (Hill et al. 2010)

Yet, one specific policy issue with tobacco tax: it is often regarded as regressive Most assessments to date assume individuals with different income to be responsive to tax increase in the same way! Objective: use Extended Cost Effectiveness Analysis (ECEA) to examine regressivity of increased tobacco taxes

ECEA: Health Policy Assessment, with dimensions of equity & medical impoverishment Extended Cost-Effectiveness Analysis (ECEA) Distributional consequences across distinct strata of populations (e.g. socio-economic status, geographical setting, gender) Financial risk protection: quantify household medical impoverishment averted by policy Verguet, Laxminarayan & Jamison. Health Economics 2015 Verguet, Kim, Jamison. PharmacoEconomics 2016

ECEA of tobacco tax Increase retail price of tobacco Poorest Poor Health benefits Generation of excise tax revenues Changes in household cigarette expenditures OOP tobacco-related disease expenditures averted Financial risk protection benefits Poorest Poor Middle Rich Richest

ECEA study of increased tobacco excise tax in China Verguet, Gauvreau, Mishra, MacLennan, Murphy, Brouwer, Nugent, Zhao, Jha, Jamison. “The consequences of tobacco tax on household health and finances in rich and poor smokers in China: an extended cost-effectiveness analysis.” Lancet Global Health 2015; 3:e206-216. http://www.thelancet.com/journals/langlo/article/PIIS2214-109X(15)70095-1/abstract

Tobacco in China Tobacco prevalence (males) Tobacco-related mortality 50%; 300 million smokers 15 cigarettes per day; varies slightly by socioeconomic status Tobacco-related mortality Risk of premature mortality from smoking = 50% 1M annual deaths Stroke (46%); heart disease (23%); neoplasm (20%); COPD (11%) Out-of-pocket expenditures Only 50% of inpatient healthcare costs (e.g. cancer, stroke costs) reimbursed by insurance schemes Stroke ($2,000), heart disease ($11,000), cancer ($14,000) Price elasticity of cigarette consumption (based on reviews) - 0.40 on average - 0.50 (poorest) to - 0.30 (richest) Youth (< 25 year-olds) are twice as price elastic

Results of 50% price hike (1): premature deaths averted Total: 13 million (95% UI: 11-15) over 50 years

Results of 50% price hike (2): additional excise tax revenues Total: 700 $ billion (95% UI: 600-800) over 50 years

Results of 50% price hike (3): changes in household tobacco expenditures Total: 370 $ billion (95% UI: 230-500) over 50 years

Results of 50% price hike (4): financial risk protection Total: 1.5 $ billion (95% UI: 1.0-2.1) over 50 years Total: 23 $ billion (95% UI: 19-28) over 50 years

Summary: Pro-poor angles of tobacco tax 50% tobacco price increase, China Summary: Pro-poor angles of tobacco tax 95% uncertainty contours I = Bottom income quintile

ECEA study of increased tobacco taxes in Colombia Joint work with: Roberto Iunes, Manuela Villar Uribe – World Bank Camilla Franca – Ministerio de Salud y Protección Social, Colombia Erin James - Harvard

Tobacco in Colombia Tobacco prevalence Tobacco-related mortality 12 % of population; about 3 million smokers 12 cigarettes per day; varies slightly by socioeconomic status Tobacco-related mortality 26,000 deaths annually (16% of deaths among population > 35) Stroke (9%); heart disease (26%); neoplasm (31%); COPD (33%) Tobacco-related expenditures Treating tobacco-related diseases costs $4.3 billion or 0.2% of GDP Price elasticity of cigarette consumption (based on reviews) - 0.61 (poorest) to – 0.21 (richest) Youth (< 25 year-olds) twice as price elastic Prospective tax increase simulated Parliament passed increase in excise and VAT taxes in December 2016: - tripling of excise tax by 2019 - 3 percentage point increase in VAT

Preliminary results: distributional findings

ECEA of tobacco tax enables examining distributional consequences and priority setting beyond the health sector Estimate equity and poverty reduction benefits of policies i.e. poverty cases averted per policy $ invested 1000 Poverty averted per health policy $1M invested 800 Poverty averted per education policy $1M invested 600 Poverty averted per transport policy $1M invested Intersectoral comparison by Ministry of Finance & Development

http://www.hsph.harvard.edu/steph ane-verguet/ Email: verguet@hsph.harvard.edu Web: http://www.hsph.harvard.edu/steph ane-verguet/