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.