The C.D. Howe institute just released a report– “A Taxing Dilemma: Assessing the Impact of Tax and Price Changes on the tobacco market.” Authors Ian Irvine and William Sims of the Concordia University assess the effect of tax regulations on tobacco consumption in Canada and, in particular, on prices and consumer choice between illegal and legal cigarettes.
Among their main findings:
- Tax reductions on legal cigarettes would have only a modest impact on the share of the illegal product, cause a decline in tax revenues and result in a small increase in total consumption;
- For tax policy to drive out the illegal market, tax reductions would have to be substantial. But such tax reductions would reduce tax revenues dramatically and increase overall consumption;
- However, if the price of the illegal product could be raised with extra legal or enforcement pressures on suppliers, then the market share of the illegal product would decline
For complete text of press release and copy of the report, click here: http://www.sacbee.com/2012/05/10/4480600/how-best-to-smother-sales-of-contraband.html#storylink=cpy