Tobacco industry in Mexico: a general equilibrium analysis.

OBJECTIVE: Effects of tobacco taxation on employment in Mexico are measured by using an applied general equilibrium model. METHODS: The study describes the modelling methodology based on a 2013 social accounting matrix for Mexico, built for analysing the impact of tobacco taxation on employment. Unemployment is treated as an endogenous variable. RESULTS: Setting the specific component of the Excise Tax on Production and Services (IEPS) at 1.50 pesos per cigarette would lead to the loss of tobacco-related jobs constituting just 0.1% of all jobs nationally. Revenue from IEPS on tobacco would increase by 49%, while consumption would fall by 26%. This minimal loss of employment can be compensated for if the government invests revenue from IEPS on tobacco in some specific sectors. We show this for the case of the health sector. Far from just reducing cigarette consumption, this tax reform would also create 33 781 jobs with a net gain of 32 285 across different sectors of the economy while only reducing 727 jobs in the tobacco industry in the whole country. CONCLUSION: Results suggest the existence of a good margin for increasing tobacco tax beyond the 2020 update of 0.49 pesos per stick. In addition, from a public health point of view, if tobacco tax revenue were allocated as a direct healthcare subsidy this would deliver a double dividend by further discouraging consumption and increasing tobacco tax revenue by almost 50%, with little impact on key macroeconomic variables in Mexico, which could be offset in more dynamic sectors while promoting health, employment and development.

The impact of tobacco tax reforms on poverty in Mexico.

This paper investigates the impact of increasing the tobacco taxes on the poverty rate in Mexico. Unlike most LMIC countries, the prevalence of smoking in Mexico is higher among the well-off than among the poor. Yet, tobacco tax rates in Mexico are lower than those in most LMIC countries. There is room, thus, to implement tax reforms and compensating policies to mitigate their impact on the poor. Our analysis is based on the stochastic dominance approach. More precisely, several tax reforms are analyzed through the so-called Consumption Dominance curves. In addition, the reforms are assumed to be revenue neutral and to give rise to compensating subsidies on specific goods. Our results show that if the Mexican government were to implement a WHO-type reform, poverty among households with at least one smoking member would increase by 2.6 % points. Yet, the deleterious effects are entirely mitigated by price subsidies on staple foods. SUPPLEMENTARY INFORMATION: The online version of this article (10.1007/s43546-021-00141-x) contains supplementary material, which is available to authorized users.