Working Paper

Smoke Screen: Estimating the Tax Pass-Through to Cigarette Prices in Pakistan

Smoke Screen: Estimating the Tax Pass-Through to Cigarette Prices in Pakistan

This paper estimates the magnitude and speed of tax pass-through across tobacco products at different price points in Pakistan by using a novel dataset of monthly observations on cigarette prices in 50 cities during the period 2004-2015. The pass-through of cigarette taxes to retail prices is found to occur within two months, but is mostly incomplete in magnitude. On average, a one-rupee tax increase is estimated to lead to an increase of only PRs 0.8 in retail cigarette prices.

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