Tax harmonisation and tobacco product prices in the European Union, 2004-2015

Abstract

Objectives: The European Commission has formally opened a process of revision of its tobacco tax directive. The purpose of this study is to analyse the evolution of cigarette and roll-your-own (RYO) tobacco prices in order to identify avenues for the improvement of public health goals.

Methods: Pooled cross-sectional data on prices and taxes on cigarettes and RYO tobacco in the Member States over 2004-2015 is used to track the distributions of the most popular price category and the weighted average price of these products and to relate them to the underlying tax structure.

Results: The inflation-adjusted prices for the two products have increased over the period, but the dispersion of prices across Member States has remained constant. Throughout the period, there was a pervasive price gap between cigarettes and RYO tobacco within the Member States. Such features are explained by the underlying tax design.

Discussion: The current tax stance has been successful at increasing both cigarette and RYO tobacco prices. To further enhance the public health impact of the European Union tax directive, the revision should promote the convergence of prices across Member States and aim at closing the price gap between cigarettes and RYO tobacco. These objectives call for increasing the mandatory minimum levels of excise duty on the two products, preferably linking them to the evolution of a European weighted average price. The pace of increase should be faster for RYO tobacco in order to close the gap with respect to cigarette prices.

Keywords: economics; hand-rolled/ryo tobacco; price; public policy; taxation.