How Do Indirect Taxes on Tobacco Products Affect Inflation?

How Do Indirect Taxes on Tobacco Products Affect Inflation?

How Do Indirect Taxes on Tobacco Products Affect Inflation?

In this study, the effects of price adjustments in the tobacco sector in Turkey on inflation are examined. The results show that taxes on tobacco products have a short-term effect on inflation. However, the said effect is quite limited and indicates that if the 65.25% SCT rate, which is still in circulation, increases by approximately 25 basis points, there will be an increase of 16 basis points on inflation. The factors that determine inflation in the long run are cost and demand channels. The cost-effective effect of tobacco prices is quite limited due to the low weight of this product in the consumption basket. However, the structure of the tax multiplier used in tobacco taxation increases cigarette prices non-linearly, and therefore has the potential to distort inflationary expectations.

Please click on this link for the Turkish translation of the study.

Prepared by Cem Çakmaklı, Selva Demiralp, Sevcan Yeşiltaş and Muhammed Yıldırım in collaboration with ZAY Strategy and Philip Morris Sabancı.

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