Abstract:
This paper uses data from Thailand’s cigarette smoking and alcoholic drinking behavior survey in 2007 to analyse the impact of the changing cigarette taxation on smoker incidence distribution. The analysis is carried out in the context of “rational addiction” and “time inconsistency” model. Given the assumption that the smoker is rational-addicted, the role for policymaker is in correcting the externality of cigarette consumption and the tax incidence is regressive. This paper considers the problem of tax regressivity from a time inconsistent model. The result reveals that the cigarette taxes are progressive. Since the cigarette tax acts as a commitment device for time-inconsistent smoker and lower income smokers are much more price sensitive, therefore they benefit more from the commitment device provided by higher cigarette taxes.
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