Cigarette Consumption, Taxation, and Household Income : Indonesia Case Study
Cigarette consumption has been increasing in Indonesia, as in many other developing countries, causing a rising burden of disease and premature death. Higher excise taxes have proved effective in many countries in reducing cigarette consumption and...
| Main Authors: | , , |
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| Format: | Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2013
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2005/02/5702526/cigarette-consumption-taxation-household-income-indonesia-case-study http://hdl.handle.net/10986/13737 |
| Summary: | Cigarette consumption has been
increasing in Indonesia, as in many other developing
countries, causing a rising burden of disease and premature
death. Higher excise taxes have proved effective in many
countries in reducing cigarette consumption and raising
government revenues. This study examines the effect of
higher prices/taxes on the decision to smoke, the quantity
of cigarettes consumed by smokers in different income groups
in Indonesia, and government revenues. It uses 1999 Social
and Economic Survey (SUSENAS) household data, with
households as the unit of analysis. There was at least one
smoker in 57 percent of all households. Most households
smoked kretek cigarettes with filters (64 percent), or
without filters (31 percent). Average household monthly
cigarette consumption was 18 packs of 16 cigarettes. Per
capita cigarette consumption was higher for higher income
households: 7.83 packs per month, compared to 4 packs for
low-income households. On average, households spent 6.22
percent of their total income on cigarettes and kreteks,
lower-income households spent the highest percentage. The
study suggests that price is not a significant factor in
household decisions to smoke or not, but has a significant
effect on the quantity of cigarettes smoked: each 10 percent
increase in price would reduce total cigarette consumption
by 6 percent. The reduction would be higher-nearly 7
percent-among low-income households, and lower-3
percent-among high-income households. Cigarette consumption
increases as income rises: a 10 percent increase in
household income would increase consumption by 6.5 percent,
with a particularly strong effect among low-income
households-a 9 percent increase-but little change among high
income households-an increase of less than 1 percent.
Simulations show that a 10 percent tax increase that raised
cigarette prices by 4.9 percent would reduce consumption by
3 percent, and increase tax revenues by 6.7 percent, ceteris
paribus, including assuming no significant switching among
cigarette products with different prices and tax levels. |
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