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Tobacco Economic of Indonesia: Poor Households' Spending Pattern, Tax Regressivity and Economic Wide Impact of Cigarette Excise Tax Simplification

Author

Listed:
  • Rus'an Nasrudin

    (Department of Economics, Faculty of Economics, University of Indonesia)

  • Ledi Trialdi

    (Department of Economics, Faculty of Economics, University of Indonesia)

  • Djoni Hartono

    (Graduate Program in Economics, Faculty of Economics, University of Indonesia)

  • Abdillah Ahsan

    (The Demographic Institute, Faculty of Economics, University of Indonesia)

Abstract
Policy to reduce cigarette consumption is needed because of the harm to both smokers and the surrounding healthy. In narrow sense, the harm of cigarette consumption for poor households needs to be taken into account into policy consideration as it expected to sacrifies essential spending for the poor. In general, any policy related to any influential sector in the economy, including tobacco sector, needs an economic wide impact consideration. This study aims to justify the policy on three grounds: analysis on poor household with smoker in terms of their spending pattern, an assessment of the cigarette excise tax burden's regressivity and and economic wide impact analysis of a cigarette excise tax simplification. This study find that there is tendency of lower spending on essential good (health and food) of poor household with smoker than without smoker. Secondly, indeed, the tax burden of Indonesia's excise tax is regressive so that it put burden more to the poor than the richer. Lastly, a cigarette tax increase will reduce national output with considerably small impact but moderately increase government revenue to boost the economy through infrastructure spending as the optimum opt.

Suggested Citation

  • Rus'an Nasrudin & Ledi Trialdi & Djoni Hartono & Abdillah Ahsan, 2013. "Tobacco Economic of Indonesia: Poor Households' Spending Pattern, Tax Regressivity and Economic Wide Impact of Cigarette Excise Tax Simplification," Working Papers in Economics and Business 201302, Faculty of Economics and Business, University of Indonesia, revised Mar 2013.
    • Handle: RePEc:lpe:wpecbs:201302
    as

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    File URL: http://econ.feb.ui.ac.id/uploads/201302.pdf
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    References listed on IDEAS

    as
    1. Howard Chernick & Andrew Reschovsky, 2000. "Yes! Consumption Taxes Are Regressive," Challenge, Taylor & Francis Journals, vol. 43(5), pages 60-91, September.
    2. Pyatt, F Graham & Round, Jeffery I, 1979. "Accounting and Fixed Price Multipliers in a Social Accounting Matrix Framework," Economic Journal, Royal Economic Society, vol. 89(356), pages 850-873, December.
    3. Remler, D.K., 2004. "Poor Smokers, Poor Quitters, and Cigarette Tax Regressivity," American Journal of Public Health, American Public Health Association, vol. 94(2), pages 225-229.
    4. Djoni Hartono & Budy P. Resosudarmo, 1998. "Eksistensi Matriks Pengganda dan Dekomposisi Matriks Pengganda Pyatt dan Round dari Sistem Neraca Sosial Ekonomi," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 46, pages 473-495, December.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Cigarette; Consumption Pattern; Excise Tax; Regressivity; Computable General Equilibrium;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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