title: Firm strategy and consumer behaviour under a complex tobacco tax system: implications for the effectiveness of taxation on tobacco control.
abstract: The current tobacco taxation scheme in Turkey, a mix of highad valoremtax and low specific tax, contains incentives for firms and consumers to change pricing and consumption patterns, respectively. The association between tax structure and price and tax revenue stability has not been studied in detail with micro data containing price segment information.
  
  
  
  In this study, we analyse whether incentives for firms and consumers undermine the effectiveness of tax policy in reducing consumption.
  
  
  
  We calculate alternative taxation scheme outcomes using differingad valoremand specific tax rates through simulation analysis. We also estimate price elasticity of demand using detailed price and volume statistics between segments via regression analysis.
  
  
  
  A very highad valoremrate provides strong incentives to firms to reduce prices. Therefore, this sort of tax strategy may induce even more consumption despite its initial aim of discouraging consumption. While higher prices dramatically reduce consumption of economy and medium price segment cigarettes, demand for premium segment cigarettes is found to be highly price-inelastic.
  
  
  
  The current tax scheme, based on bothad valoremand specific components, introduces various incentives to firms as well as to consumers which reduce the effectiveness of the tax policy. Therefore, on the basis of our theoretical predictions, an appropriate tax scheme should involve a balanced combination ofad valoremand specific rates, away from extreme (ad valoremor specific dominant) cases to enhance the effectiveness of tax policy for curbing consumption.
authors.affiliation: Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Ankara, Turkey.
authors.forename: Oğuz
authors.initials: O
authors.lastname: Atuk
authors.affiliation: Research and Monetary Policy Department, Central Bank of the Republic of Turkey, Ankara, Turkey.
authors.forename: M Utku
authors.initials: MU
authors.lastname: Özmen
mesh_terms: D003132:Commerce / Q000191:economics*; D003198:Computer Simulation; D003258:Consumer Behavior / Q000191:economics; D006801:Humans; D012044:Regression Analysis; D012907:Smoking / Q000191:economics* / Q000453:epidemiology; D000074606:Smoking Prevention; D013660:Taxes / Q000191:economics*; D019460:Tobacco Industry / Q000191:economics; D062789:Tobacco Products / Q000191:economics*; D014421:Turkey
keywords: Economics; Low/Middle income country; Price; Taxation; Tobacco industry