To reduce the demand for tobacco, excise tax increases and the resulting higher prices are a proven effective measure that governments can adopt as part of an overall strategy of tobacco control. The higher excises will induce some smokers to quit; reduce consumption by continuing smokers; prevent others from starting; and reduce the number of ex-smokers who resume. Empirical studies have found that a 10 percent cigarette price increase will reduce consumption by 4 percent in high-income countries and 8 percent in low- and middle-income countries, as people with lower incomes are more responsive to price increases (World Bank, 1999). Though consumption is reduced, government revenue increases.
Emil M. Sunley, formerly Assistant Director, Fiscal Affairs Department, International Monetary Fund and formerly Deputy Assistant Secretary for Tax Policy, US Treasury Department.