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The Impact of E-Cigarette Regulation on the Illicit Trade in Tobacco Products in the European Union


In regulating tobacco products, governments seek to promote public health by discouraging consumption, correct for externalities due to consumption (e.g., the costs of treating illnesses caused by secondhand smoke from cigarettes) and generate revenue. However, imposing these costs on licit producers and consumers presents an economic opportunity to criminal actors to profit from skirting these laws. Illicit trade in tobacco products (ITTP) thus frustrates the goals of tobacco regulation. We estimate that a 10% increase in the price of licit cigarettes (which might result, for example, from a tax increase) leads to a 3.6 percentage-point increase in the illicit share of the market, which averages about 11% in the EU. Consequently, the threat ofITTP limits the appetite for, and efficacy of, more stringent taxes and policies that might otherwise help discourage smoking.

PMI Impact

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