Effects of Fiscal Policy on the Poor After Changes in Fiscal Policy on Tobacco Products in Mexico: Ex-Post Evaluation [Working Paper Series]

This Working Paper was written by Centro de Investigación en Alimentación y Desarrollo (CIAD) in Mexico. The working paper assesses the impact of the two most recent tobacco tax reforms, in 2011 and 2019, on tobacco consumption and spending, poverty, and tax revenues. In 2011, the government introduced a specific component to the tax structure, while in 2019, the government updated the specific tax for inflation. The researchers demonstrate that both reforms reduced consumption and raised additional tax revenues to different scales. Specifically, the 2011 reform reduced consumption by 32.7% and raised revenues by 9.1%, while the 2019 reform reduced consumption by 1.9% and raised revenues by 6.5%. The reforms also reduced poverty in smoking households, with a 4.4% decrease after the 2011 reform and a 2.6% decrease after the 2019 reform. These findings show that tobacco tax reforms, especially when they significantly raise cigarette prices above inflation, are able to effectively discourage tobacco use in households, thus improving health and economic wellbeing, while increasing tax revenues. The working paper concludes with recommendations for policy makers to continue to raise tobacco taxes to reap the associated rewards.