Smoking - Impact on the State Budget and its Fair Taxation
|Author:||Mgr. Pavel Hait|
|Year:||2011 - summer|
|Leaders:|| PhDr. Jakub Mikolášek
|Work type:|| Finance, Financial Markets and Banking
|Awards and prizes:|
|Abstract:||The paper addresses the impact of smoking in the Czech Republic in 2009.
The aim is to describe the current facts and trends of tobacco consumption, assess the
mortality attributable to smoking, compute its financial impact on the Czech state budget,
evaluate the transmission of tax changes into the retail price of cigarettes, assess consumer
price elasticity for cigarettes, and compute a fair excise tax on cigarettes for the Czech
Republic as well as the tax which would maximise the benefits of smoking for the state
budget. For our purposes, we define “fairness” as a situation in which there is no net
redistribution of state budget funds between two groups of citizens: non-smokers and smokers.
Smokers create benefits (for example, savings on pensions due to their earlier deaths) and
costs (for instance, increased health care costs) for the state budget. We search for a tax rate
that would balance smoking-associated costs and benefits. Furthermore, we also compute the
tax which would maximise net revenues from smoking to the government.
We realised these findings for the Czech Republic, 2009: we observed that there were 22,013
deaths attributable to smoking. About 2.281 billion cigarettes were sold illegally. The costs to
the state budget caused by smoking were estimated to 30,547 million CZK, whereas the
benefits to 77,915 million CZK. The consumer price own elasticity, controlled for income,
was evaluated to be -0.51. Based on these findings and regarding the size of black market, the
specific excise tax rate for a cigarette piece to attain the fair taxation should be -0.54 or 4.31
CZK. The specific excise tax rate for a cigarette piece to attain the maximum revenues for
state budget is 1.88 CZK (the current specific excise tax rate per piece is 1.07 CZK).
This work is original in many ways. Among others, it adds the effect of second-hand smoke to
the evaluation of mortality caused by smoking. Next, to the best of our knowledge, there has
been no prior work evaluating “fair” tax for cigarettes as we define it. Last but not least, the
work critically describes the pitfalls of other similar studies previously conducted for the
|Downloadable:|| Diploma Thesis of Hait