Effects of Curbing the Illicit Cigarette Market in Brazil [Working Paper Series]

This Working Paper was written by Universidade Católica Brasília (UCB) in Brazil. The working paper assesses the effects of reducing the illicit cigarette market, which currently accounts for 36% of total consumption in Brazil. Specifically, the researchers simulate the effect of increasing illicit cigarette prices on the size of the illicit market, consumption, and tax revenue. The findings suggest that higher prices of illegal cigarettes would reduce the number of smokers and consumption, overall. Some of the users that continue to smoke would switch to the licit market, thus increasing tax revenue collection. Specifically, raising the price of illegal cigarettes by 55% would reduce the size of the illegal market by 98%. It would also decrease overall consumption by 5%, while increasing tax revenues by 64%, or 7.5 billion BRL each year. The results demonstrate the importance of curbing the sizable illicit market. The working paper concludes with recommendations for policy makers to disrupt the sales and production of illicit cigarettes, strengthen enforcement, and implement evidence-based price- and non-price tobacco control policies. 

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A Policy Brief based on the working paper can be found here.