essay on sin taxes

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Do ‘sin taxes’ really change consumer behavior, february 10, 2017 • 26 min listen.

Imposing taxes on products that have negative effects on health can theoretically lower consumption. But do these policies help consumers to make better choices?

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Wharton's Benjamin Lockwood discusses his research on how 'sin taxes' affect consumer behavior

‘Sin tax’ is defined as a tax on a product that can be harmful to a person, such as cigarettes or sugary drinks. In many cases, these taxes are an incentive to lower consumption and improve health. But sin taxes can disproportionately hurt lower-income consumers, while wealthy shoppers enjoy tax breaks on items only they can afford, such as energy-efficient windows and appliances. A recent study by Benjamin Lockwood, a Wharton professor of business economics and public policy, and coauthor Dmitry Taubinsky from Dartmouth College examines the impact of sin taxes and whether there is a middle ground. The researchers also look at what is being called “revenue recycling,” where these taxes can be used to fund initiatives that benefit lower-income consumers. Lockwood recently spoke about their research on the Knowledge at Wharton show on Wharton Business Radio on SiriusXM channel 111 . (Listen to the podcast at the top of this page.)

An edited transcript of the conversation follows.

Knowledge at Wharton: Sin taxes are an important topic here in Philadelphia, where there is a tax on sugary drinks.

Benjamin Lockwood: Absolutely. It’s been happening in Philadelphia, and we’ve also seen these implemented in Chicago, San Francisco, Berkeley, Oakland and Boulder, Colorado. There’s a growing policy wave in favor of these kinds of policies, so it seems like a good time to be looking at it and trying to understand some of these implications.

Knowledge at Wharton: What did you find in your research?

Lockwood: The way that economists generally think about these kinds of taxes is that sugary beverages have health consequences. They can give rise to things like diabetes or stroke or heart disease, and these are pretty big in magnitude. A couple of years ago, there was a study estimating that if people were to reduce their sugary beverage consumption by around 20%, then the health benefits that they would reap would be something akin to giving them each a check between $100 or $300 each year. These are pretty big numbers.

On the other hand, from an economist’s perspective, it’s not enough for something to have negative consequences to justify taxing it. Things like rock climbing have negative health consequences, potentially. Driving a car has lots of negative health consequences. The key question from an economic policy perspective is whether people are taking into account these negative effects when they’re making their consumption decisions. In particular, a reason for concern about sugary beverages is that often the negative health consequences come a long time after the date of consumption. You get diabetes or heart disease much later in life.

There’s a growing literature in behavioral economics that studies the tendency for people to underweigh distant consequences and overweigh the upfront benefits or costs of doing something. This can explain everything from why we save less for retirement than we should or intend to, or why we exercise less than we ought to. A reason for being interested in sugary soda and sugary beverages is that those [choices] also have this kind of discrepancy between the upfront joy of sipping a soda and this delayed health consequence that happens far down the road.

“From an economist’s perspective, it’s not enough for something to have negative consequences to justify taxing it.”

Knowledge at Wharton: In a lot of urban areas, people financially may not have another option in terms of drinking a soda, compared with drinking bottled water. It becomes a life issue that a lot of these people are not able to overcome.

Lockwood: Right. Part of what you’re bringing up here is the question of what people can afford and how these kinds of taxes hit poorer consumers versus richer consumers. This question is the fundamental one of our research. There have been studies of how these kinds of taxes can have beneficial health consequences by reducing consumption. But there is also concern about an unintended side effect of that kind of policy — that it tends to fall heavily on poorer consumers. We know that poorer consumers tend to consume things like cigarettes and soda at higher frequencies than richer consumers do. Survey evidence suggests that at the bottom of the income distribution, people drink about twice as much sugary soda than at the top of the income distribution.

This paper looks at the regressivity consequences of these kinds of taxes and tries to get a handle on them. How do we weigh those consequences against the potential health benefits from imposing these kinds of taxes?

Knowledge at Wharton: In your estimation, are sin taxes a good thing for the consumer in general?

Lockwood: This is the million-dollar question. What is the overall impact? And if we should have a soda tax, how big should it be? Philadelphia’s soda tax is 1.5 cents per ounce. I believe Boulder’s is 2 cents per ounce. Most of the others have been 1 cent per ounce. As cities go forward trying to weigh these policies, there is this question of what the magnitude should be and whether we should have this kind of tax at all.

The key thing that we explore in our paper is that what matters for these regressivity costs is how much people respond to these taxes when they are imposed. There’s often an initial intuition that these taxes must be really bad for poor consumers because then they have to pay more out of pocket. That’s exactly right, if people don’t respond to the tax at all — if they don’t reduce their consumption. Of course, poor people end up paying more.

On the other hand, if people end up reducing their consumption a lot in response to the tax, then things get a lot trickier and a lot more interesting. The people who get the greatest health benefits from that reduction are the people who were consuming the most sugar to begin with, which tends to be poorer consumers. So, if people are responding a lot to the tax, then these kinds of regressivity costs are actually a lot smaller. In fact, some of the health benefits can be really concentrated on poor consumers, which is something that the government is interested in.

To answer the question you raised — how should these taxes exist and how big should they be — the key question is how much people reduce consumption in response to the tax. Do they keep consuming the same amount and just pay more? Or do they actually reduce how much they’re consuming?

Knowledge at Wharton:   Are you able to glean enough from what has happened in places like Berkeley and Philadelphia to say, “Yes, absolutely, there’s no question that the economic and health benefits are there for people to stay away from sugary drinks?” And are they doing it?

Lockwood: Again, this is an insightful question that cuts to the heart of the issue. In many cases, we still need more evidence to know the optimal size of these taxes. There’s some initial evidence from the tax that was imposed in Mexico, and the one that was imposed in Berkeley a couple years ago, that does suggest people reduced consumption in response to these taxes. But the estimates of how much they reduced consumption are really wide.

Economists talk about that responsiveness in terms of elasticity. If you impose a 10% tax, then by what percentage do people reduce their consumption? Do they reduce their consumption by 1.5% or by 25%? It’s a huge range. If you take the middling estimates of those, and you think that it’s a 10% or so reduction, which is where a lot of economists at this stage think the value probably lies, then our initial estimates are that some positive tax, maybe even a little larger than the ones that have already been imposed, is probably optimal. But again, we’ll know more going forward when we see the effects of these bigger cities in the next few years.

Knowledge at Wharton:  The taxes that have been put in place haven’t gone overboard, and they haven’t underdone it either. They’ve gotten it in the ballpark so that if there is any increase down the road, it may be a half-cent per ounce or so. The cities have done a pretty good job, for the most part.

Lockwood:  I don’t want to go on record saying, “It should be exactly 3.25 cents per ounce,” because we’re still waiting to see the evidence come in. But [based on] the economic research so far, my guess is that somewhere in the range of 3 cents to 4 cents per ounce — rather than the 2 cents per ounce that we’re seeing now — would be in the ballpark. I would say cities, luckily, have been in the range of reasonable taxes so far, given the hazy nature of the estimates we have.

Knowledge at Wharton: In Philadelphia, it’s been well-noted that the mayor would like to use the money from the tax to help improve pre-K education. A big focus of your research is on the good that is potentially done by these taxes that goes back to the community.

Lockwood: One of the key questions is whether it’s helpful to offset the regressivity costs of these kinds of taxes by targeting the revenues back toward poorer communities or poorer consumers. Whether that’s effective or not ends up being a pretty technical theoretical question that we get into a fair amount in the paper. The upshot is that if the reason that poorer consumers are drinking more soda than richer consumers is just a difference in preferences, then it’s not all that helpful to try to target those benefits back toward poorer consumers. There might be other arguments for why it’s really beneficial to support pre-K education. But if that’s the case, then we should be doing it through income taxes or whatever, regardless. We shouldn’t necessarily tie it to the existence of a soda tax.

Knowledge at Wharton: The impact of higher prices and taxes on cigarettes to mitigate cancer and other diseases has been discussed for years. The fact that cigarettes have seen higher costs has slowed down some people, but it hasn’t stopped [people from purchasing them]. Part of this has to do with the attraction that people have to consuming these kind of products, correct?

Lockwood: I think that’s right. One of the other questions about soda is the extent to which soda consumption is addictive in the same way that cigarette consumption is. We know from other research that people are much more responsive to cigarette taxes, to the decision to purchase cigarettes, before they start smoking or right when they’re starting, rather than after they’ve been smoking for many years. Then, if the price goes up, they’ll generally just pay the higher cost for it.

For soda, the question is whether people who are high soda consumers continue to consume soda at the same rates, like cigarette smokers — or whether they actually switch to other beverages or reduce consumption overall. Even if they’ve been consuming soda for a long time.

Knowledge at Wharton: Not that it’s directly a part of your research, but part of the problem is the companies that are bringing these products forward and the impact they have through the marketing. To a degree, it’s an uphill battle for some of these people if they want to try to step away from soda. If you want to step away from cigarettes, it’s a much harder prospect.

“If the goal of a tax is to discourage consumption of something that’s unhealthy, then people will only reduce their consumption if they actually see that tax and feel it.”

Lockwood: One of the other policy ideas that we look at a little bit in this paper but don’t delve into too much — and I think there’s more interesting work to be done here — is other kinds of non-tax policies, like some of the advertising bans or pictures of blackened lungs on cigarette packages, for instance. These kinds of policies aren’t exactly taxes but are intended to reduce consumption of cigarettes. There’s been some discussion of similar kinds of policies for soda.

Those kinds of policies, too, can make more sense when you have these goods that are consumed more by poorer consumers. They can help dissuade people from consuming this stuff without actually taking money out of their pockets, right? The idea is that less marketing would cause poorer consumers to drink less soda, without necessarily having to pay more for the soda they are drinking.

Knowledge at Wharton: Is there bias in this process in general? You’re talking about more people of lower incomes being affected by sodas and cigarette tax, compared with people of higher incomes who have the ability to put in energy-efficient windows and refrigerators.

Lockwood:  I think that’s right. Just like you mentioned with the kinds of subsidies for energy-efficient appliances, you can reframe everything we’ve said about sodas in that context and think about the unintended regressivity costs of those kinds of policies. Often, the benefits are accruing precisely to folks in the population who have higher incomes, who aren’t necessarily the ones you’re trying to help out the most.

You can do a similar kind of exercise where you say, “Well, this doesn’t necessarily have the redistributive benefits that we would otherwise hope for from a tax.” But it does have this corrective effect of getting people to consume more energy-efficient stuff, just like the soda taxes discourage people from consuming unhealthy stuff. And that corrective benefit has to be weighed against the regressivity cost.

Knowledge at Wharton: Going back to the soda issue, what really has been the impact from the tax? After it was implemented here in Philadelphia, there was a line item for it on your receipt so that it wasn’t just baked into the cost of a 20-ounce soda. That was an important piece to this.

Lockwood: Again, it’s too early to have much formal economic analysis out of this. We’ll see going forward what the overall effects on consumption and soda purchases actually are. But one of the interesting questions going into this was to what extent the soda tax — which is actually imposed on the distributors who supply sodas to grocery stores — would be passed on to consumers in the form of higher soda prices.

One of the interesting things we’ve seen so far is that it does look like stores are really trying to make a salient connection and say, “This is how much the cost of your soda has gone up because of this tax.” That’s pretty interesting. On the one hand, sometimes people are dismayed to see taxes being passed through to consumers. They’d like to see those taxes being borne by the firm or corporations. But on the other hand, if the goal of a tax is to discourage consumption of something that’s unhealthy, then people will only reduce their consumption if they actually see that tax and feel it. In this case, having that tax passed through to the consumer and being front-and-center on the receipt might be consistent with the apparent goals of the policy.

Knowledge at Wharton: With cigarettes, you’re not seeing that itemized receipt that says what you’re paying because of the tax. It could be a very important deterrent in this process.

Lockwood:  It certainly could be. It’ll be interesting to see whether those line items persist going forward or whether that was a temporary move by the grocers to try to explain why we had this one-time cost increase. But if they stay there, and the tax ends up being fully passed on to consumers on into the future, I think it will be interesting to see if that actually helps with these benefits. Maybe this is the kind of thing that we should have been doing with cigarettes all along, really emphasizing how much the cost is increasing because of these taxes.

Knowledge at Wharton: How much interest in this research topic is there from the medical community?

Lockwood: I think the medical research community has a big part to play in this. Although this is mostly a theory paper, it identifies the key parameters or estimates that will govern what that optimal tax is. A lot of that research can beneficially come from the medical community. Things like, how much more does medical care cost when people consume more sugar versus less? How much do people seem to be taking those costs into account when they are making their consumption decisions?

Those are exactly the kinds of things that people are studying right now. And as I said, we have some initial estimates. But I think this is an exciting time both for economists and medical researchers because we will have better estimates of this shortly.

“What you’d like to do is to have people switch away from these sugary things toward other things.”

Knowledge at Wharton: We’ve seen growth in an area called behavioral economics. We want to understand the economic impact of our behaviors right now, whether they are positive or negative.

Lockwood: Exactly. This is a very exciting and vibrant area of economic research, where we relax the conventional economic model in which people are fully rational and fully take everything into account when they’re making every single decision they make all day. This area of behavioral economics allows for what many of us feel: That there are a lot of things going on. A lot of things are confusing, and you’re not always paying perfect attention to everything, including what the eventual health costs are of everything that you might engage in. When that’s the case, there are beneficial things that the government can do to help guide behavior or explain those costs.

Knowledge at Wharton: Starting to put these theories together, what potentially is the impact on the lower incomes in Philadelphia and Chicago and San Francisco, compared with where we will be going in the next five to 10 years?

Lockwood: I think a lot of it comes back to these empirical estimates of trying to see what the effects of these taxes actually are. In Philadelphia, if it turns out that people basically don’t change their soda consumption because they instead just drive across the Ben Franklin Bridge and buy their soda in New Jersey, then you don’t actually get any of the health benefits that I was just talking about. People still consume the same amount. They get diabetes at the same rate. The only thing that happens is, they waste more gas driving across the bridge. That would be a downside of this kind of policy.

Now, there are things you could potentially do to correct that, like cooperating with nearby localities and jointly setting taxes so there aren’t these big differences across local borders. But if it turns out that people just buy at their local store, and this has a big impact, then we’ll find out that this is a useful policy to be implemented at the city level.

Another question along these lines is how much people substitute other kinds of drinks or how their consumption behavior changes. One way in which Philly’s tax was distinctive is that it also extended to cover diet soda beverages. From the economic health perspective, that’s not obviously a great move in terms of policy design. Maybe there are some unintended health consequences of diet soda, too. But the estimates now suggest that those are miniscule relative to the negative consequences of sugar consumption.

What you’d like to do is to have people switch away from these sugary things toward other things — maybe toward diet soda, if that’s really what they want. Having a better sense of whether people just keep consuming their sugary soda because diet also went up [in price], or whether they instead switched to bottled water or something, will have an impact on whether other cities then think about imposing taxes across the board on diet beverages, too.

Similarly, there will be a benefit for other cities in understanding how to make the case for these policies to their constituents. One of the interesting things that we saw with the Philadelphia mayor’s proposal is it was tightly tied to these spending programs on pre-K in a way that some of the previous Philadelphia soda tax proposals were not, the ones that actually ended up failing. This is something that other cities I think have taken note of — that sometimes in making the case for these kinds of things, it’s really helpful to show how those funds would be spent and how they can be retargeted to the affected classes.

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Article Contents

Introduction, supplementary data.

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Sin taxes and their effect on consumption, revenue generation and health improvement: a systematic literature review in Latin America

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Aurelio Miracolo, Marisa Sophiea, Mackenzie Mills, Panos Kanavos, Sin taxes and their effect on consumption, revenue generation and health improvement: a systematic literature review in Latin America, Health Policy and Planning , Volume 36, Issue 5, June 2021, Pages 790–810, https://doi.org/10.1093/heapol/czaa168

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Sin or public health taxes are excise taxes imposed on the consumption of potentially harmful goods for health [sugar-sweetened beverages (SSBs), tobacco, alcohol, among others], aiming to reduce consumption, raise additional revenue and/or improve population health. This paper assesses the extent to which sin taxes (a) can reduce consumption of potentially harmful goods, (b) raise revenue for national health systems and (c) contribute to population health in Latin America. A systematic literature review was conducted on peer-reviewed and grey literature; endpoints included: impact of raising sin taxes on consumption, ability to raise revenue for health and the possibility of population health improvements. Risk of bias for each study was assessed. The synthesis of the literature on sin tax implementation showed improvements in all three endpoints across the study countries. Following the introduction of sin taxes or by simulating their potential impact, nearly all studies explicitly reported that consumption of potentially harmful goods (mainly SSBs and tobacco) declined; revenue was found to have increased in almost all countries, suggesting that there may be additional scope for further tax increase. Simulated improvements in population health have also been shown, by demonstrating a relationship between sin tax increases and reduction in prevalence of diabetes, stroke, heart attacks and associated deaths. However, sin tax effects on health would be better quantified over the long-term. Data quality and availability challenges did place some limitations on sin tax impact assessment. Sin taxes can be effective in reducing consumption of potentially harmful goods, improve population health and generate additional revenue. Promoting further research on this topic should be a priority.

This is the first systematic literature review assessing the effect of sin taxes on consumption, fiscal space generation and their impact on population health in Latin America.

Reduction in harmful goods consumption (81% of studies), positive effects on revenue generation (71%) and on health outcomes (82%) are key outcomes.

There is still room for further tax increases where sin taxes have been adopted.

Further research is needed to improve data collection for a more comprehensive analysis of the impact of sin taxes

Sin taxes, or public health taxes, are defined by the World Health Organisation as excise taxes targeting goods that can be detrimental to the health of the population ( WHO, 2004 ). These goods include tobacco products, alcohol, sugar-sweetened beverages (SSBs), which are drinks with added sugar, such as soft drinks, tea, flavoured coffee, juice and sports drinks. The harmful impact of these goods is well known and is evidenced by research ( Cnossen, 2005 ); for instance, tobacco consumption is linked to an increased risk of developing cardiovascular disease (CVD), respiratory disease, cancer and other non-communicable and chronic diseases ( U.S. Department of Health and Human Services, 2014 ), while elevated SSB consumption is generally associated with an increased risk of developing CVD, metabolic disease and obesity ( Malik et al. , 2013 ; Arsenault et al. , 2017 ).

Published evidence has demonstrated the effect of sin taxes on consumer behaviour, health outcomes and on revenue generation for health systems ( Wright et al. , 2017 ). Although differences in sin tax application and outcomes are present between low- and middle-income countries (LMICs) vs high-income countries (HICs), evidence has shown that the application of these taxes can have a significant effect on consumption patterns and the well-being of the population, while being financially sustainable ( Goodchild et al. , 2016 ).

The inverse relationship between increases in sin taxes and consumption is also well established for the consumption of SSBs ( Colchero et al. , 2017 ). Research related to health and behaviour connected to SSBs intake has been conducted in HICs ( Claro et al. , 2012 ) reporting that consumption of SSBs instead of zero-calorie beverages can lead to excess weight and obesity. This has raised concerns over SSB consumption in LMIC settings where research is more limited.

From an economic standpoint, excise duties are a form of indirect taxation, in that they are levied on goods or services rather than on firms or personal incomes. This gives them greater capacity to shape consumer behaviour. Sin taxes can be applied in two different ways: per unit (defined as a fixed amount for each unit of a good or service sold, such as dollars per kilogram) or ad valorem (levied on spending and set as a percentage of the value added by a firm, as is the case of a value-added tax (VAT)). With the former, the tax is represented by a fixed amount per unit, while with the latter, the tax is made up of a fixed percentage per unit.

Sin taxes represent one way of raising revenue and, through that, creating fiscal space (FS). The revenue-generating capacity of sin taxes can help countries increase expenditure by creating additional FS ( Heller, 2006 ), which, in turn, allows countries to direct financial resources to public spending without depressing other items of expenditure or by destabilizing budget equilibria.

An analytical framework of the possible policies that can be adopted for the creation of FS in the health sector has been established ( Heller, 2006 ; PAHO, 2015 ); this includes, first, the promotion of conducive macroeconomic conditions; second, a reprioritization of health expenditure; third, the improvement of efficiency in existing health expenditure; fourth, increasing the efficiency of tax collection; fifth, a recourse to external aid (grants, loans); and sixth, the creation of new tax revenues through a greater tax burden (PAHO, 2015). Latin American taxation on goods such as tobacco, alcohol and sugar, which are potentially harmful for general health, is considerably lower than the average in Organization for Economic Cooperation and Development (OECD) countries ( PAHO, 2015 ) and, as such, represents a valid policy choice for Latin American countries, since they can simultaneously generate revenue as well as influence consumer behaviour and, by implication, population health.

Latin America is considered an area with relatively high levels of consumption of products which can prove harmful to public health (tobacco, alcohol, saturated fat). Twenty per cent of people under 20 years of age are overweight or obese in the region ( Cominato et al. , 2018 ), while this percentage exceeds 50% among Mexican and Peruvian adults ( Kain et al. , 2014 ; Batis et al. , 2016 ; Colchero et al. , 2017 ). Furthermore, an overall high prevalence in tobacco consumption is recorded in the region: only Ecuador, Peru, Bolivia and Paraguay report a consumption of <500 cigarettes per capita per annum, while in all other Latin American countries tobacco consumption ranges between 500 and 1500 cigarettes per capita per annum ( Muller, 2008 ). Given the significant consumption of potentially harmful goods, the associated negative impact on health in Latin America, and considering the opportunities outlined in the FS framework ( PAHO, 2015 ), the purpose of this paper is to assess the impact of sin tax implementation in the Latin American region. A systematic literature review is conducted for this purpose. While the impact of sin taxes has been investigated at country level in some Latin American countries ( Mejia et al. , 2008 ; Claro et al. , 2012 ; Curti et al. , 2015 ; Batis et al. , 2016 ) or countries outside the Latin American region ( White and Ross, 2015 ), including HICs ( Wright et al. , 2017 ), comparative evidence of this type of taxation at regional level, and, specifically, in the Latin American context, where there may be economic and cultural similarities amongst the countries in the region, is missing. While the effect of sin taxes in HICs is well established ( Wright et al. , 2017 ), it is unclear if these findings translate to Latin America, where there are differences in policy priorities, policy processes and fiscal commitments. There is no study that analyses and pulls together any available evidence on the impact of sin tax introduction in Latin America, a continent dominated by middle-income countries, where public investment in health is in the majority of cases low as proportion of gross domestic product (GDP) and where increases in spending are required in order to comply with universal health coverage pledges. The paper, therefore, contributes to the discussion of whether sin taxes have any effect on tax revenue and consumption of potentially harmful products, impact health impact and, broadly speaking, contribute to healthcare financing.

Approach and endpoints

A systematic literature review (SLR) has been conducted to investigate the impact of sin taxes in the Latin American region. The geographical scope of the study included the South American continent, the Spanish-speaking countries of continental central America and excluded the Caribbean region. Three endpoints were considered: first, a consumption endpoint, examining whether the application of excise taxes has had any effect on the demand for goods (i.e. SSBs, unhealthy food, tobacco, alcohol); second, a revenue endpoint, which aimed to determine whether sin taxes can generate additional financial resources or FS for countries, and what priorities are defined for subsequent spending; and, third, a health impact endpoint, whose objective was to determine the role of sin taxes in changing the prevalence of diseases related to the consumption of harmful goods (i.e. CVD, diabetes, respiratory system disease, cancer and other non-communicable and chronic diseases, cardiometabolic problems, obesity or being overweight).

Search strategy and eligibility criteria

‘Sin Tax*’ OR ‘Sugar Tax*’ OR ‘Tobacco Tax*’ OR ‘Alcohol Tax*’ OR ‘Salt Tax*’ OR ‘Sodium Tax*’ OR ‘Excise Tax*’ OR ‘Food Tax*’ OR ‘Earmark* Tax*’ OR ‘Cigarette Tax*’ OR ‘Beer Tax*’ OR ‘Wine Tax*’ OR ‘Beverage Tax*’ OR ‘Calorie Tax*’ OR ‘Processed Food Tax*’ AND ‘Latin America’ OR ‘South America’ OR ‘Central America’ OR ‘Argentina’ OR ‘Belize’ OR ‘Bolivia’ OR ‘Brazil’ OR ‘Brasil’ OR ‘Chile’ OR ‘Colombia’ OR ‘Costa Rica’ OR ‘Ecuador’ OR ‘El Salvador’ OR ‘French Guiana’ OR ‘Guatemala’ OR ‘Guyana’ OR ‘Honduras’ OR ‘M é xico’ OR ‘Mexico’ OR ‘Nicaragua’ OR ‘Panama’ OR ‘Paraguay’ OR ‘Peru’ OR ‘Suriname’ OR ‘Uruguay’ OR ‘Venezuela’

This search strategy included all terms for sin taxes used in Latin American countries, the range of different goods on which taxes are usually applied, and all countries within the Latin American region. The intervention related to the application of sin taxes on harmful goods such as tobacco or high energy density foods, with different outcomes, all subsequently classified under one of the three defined endpoints. Relevant publications in English and Spanish were included. The exclusion steps considered were (1) exclusion of duplicates (as soon as they were identified through the screening process), (2) exclusion of unrelated titles, (3) exclusion of unrelated abstracts and (4) exclusion through full-text analysis.

Study exclusion criteria were non-Latin American countries, previous systematic literature reviews or previous meta-analyses, books or chapters of books, dissertations and theses, presentation abstracts, studies not related to any of the considered endpoints and studies lacking any assessment of relevant taxes. The study period ranged from 1 January 2000 to 31 December 2018. Table 1 summarizes the Population, Intervention, Comparator, Outcome, Study Design, Time frame (PICOST) characteristics.

PICOST table

Data extraction

In accordance to Cochrane guidance ( Higgins et al. , 2019 ), a template to organize the identified information has been implemented. An initial template, drawn up in Excel, included all the studies that resulted after a first screening of duplicates and titles. This template included information on the main characteristics of each study (title, author(s) and country or location), data on the purpose of the study and the tax of interest, number of participants, participant characteristics, the investigated endpoint(s), findings of the evaluation and a brief statement on the conclusion of the study. This step has been key in assisting a further screening process through the abstract analysis and, in the final stage, through the evaluation of full-text features.

Risk of bias assessment criteria

A risk of bias assessment was performed during the research for full-text evaluation, according to the ROBINS-I tool ( Sterne et al. , 2016 ) developed by Cochrane and the BMJ, with the goal of defining the quality of the studies. The domains included for the risk of bias assessment related to confounding, selection of participants into the study, deviations from intended interventions, missing data, measurement of outcomes and selection of the reported results.

Data synthesis

Findings are grouped under the three endpoints, (1) effect on consumption, (2) effect on revenue generation and (3) health impact. In each of the three endpoints, there was a further division, where possible, relating to the type of good (e.g. SSBs, tobacco, alcohol). The study's PROSPERO identification number is CRD42018096210.

Study characteristics

The PRISMA flowchart ( Figure 1 ) shows the number of studies included in our review and how they are arrived at. In the initial stage of the systematic review, 1321 studies were found across all databases. Following the screening process and by applying the exclusion criteria, 34 studies were included in the review.

PRISMA flowchart.

Of the 34 included studies, 27 addressed the consumption endpoint, 6 the health endpoint and 10 the revenue generation endpoint; 9 studies addressed multiple endpoints. There were no randomized control trials (RCTs) amongst the included studies.

With regards to the intervention, 13 studies focused on SSBs and high energy density foods. This included the excise tax on SSBs (1 peso/L) and the 8% sales tax on foods implemented in Mexico in January 2014 and the SSBs excise tax in Brazil. Twenty-three studies were related to the taxation of tobacco products. Countries involved in the analysis included Mexico, Argentina, Brazil, Uruguay, Ecuador, Peru, Colombia and Panama. Two studies analysed the intervention on a continental and multi-country level ( Garcés et al. , 2014 ; Goodchild et al. , 2017 ). Studies on tobacco focused mainly on the change in demand for tobacco, the impact on price caused by the tax implementation and the main features related to the demographic and epidemiological context in which these policies are operating. Alcohol was assessed in just one study, together with the analysis of tobacco demand in Ecuador ( Chavéz, 2016 ).

The SLR included mostly observational studies and to a lesser extent narrative reviews. Most of the included literature focused on studies analysing consumption, and the main goods of interest were, first, tobacco, its demand, and the role of illicit trade and, second, SSBs and their impact on all three endpoints. Studies displayed significant variety in the population included, data sources, and evaluation methods for the specific tax of interest, as well as the evaluation of the specific tax of interest. Country differences in taxation systems, sin tax structure and levels of stakeholder involvement have added complexity to our analysis. The dominance of observational studies and the absence of other study designs (e.g. RCTs) is the result of the type of argument addressed and the requirement of wide population cohorts, which represent the national trend and must not be criticized as a source of low-quality evidence ( Pindyck et al. , 2018 ). Table 2 outlines the characteristics of included studies (endpoint, publication outlet, national setting, population, data sources indicator of interest).

Study key characteristics

TTI, Tobacco tax increase; SSB, sugar-sweetened beverage; SPST, special production and services tax; VAT, value-added tax.

Effect on consumption

Ssbs and unhealthy foods.

The effect of sin taxes on consumption of SSBs was addressed by 12 studies. Nine of these were related to the implementation of SSBs taxes in Mexico, two focused on taxation of high-sugar content beverages in Chile and one investigated the potential relationship between SSB prices and levels of consumption in Brazil.

The literature focused on Mexico due to the high levels of SSB consumption. Before tax implementation, Mexico had the highest worldwide soft drinks consumption (163 litres per capita) in 2011 ( Colchero et al. , 2016b ). In January 2014, Mexican government introduced a tax of 1 Mexican peso per litre on all sugary non-alcoholic beverages, i.e. sodas, flavoured waters, sweetened dairies, teas and energy drinks with added sugars, but excluded drinks consisting of 100% juice and beverages with artificial sweeteners ( Claro et al. , 2012 ). This caused an 11% price increase in carbonated SSBs and circa a 10% price increase in non-carbonated SSBs, compared with prices in 2013 ( Colchero et al. , 2016a ). At the same time, Mexico introduced an 8% ad valorem tax on non-essential highly energy-dense foods (with at least 275 calories per 100 g) ( Colchero et al. , 2016b ).

Six studies analysed the changes in consumption caused by the implementation of the SSB tax (1 peso/l) in Mexico. The common aim of these studies was to understand how consumer behaviour would change following the tax introduction. This was achieved by investigating different data sources, notably, Nielsen's Mexico Consumer Panel services (henceforth Nielsen Panel), that collects data on households' monthly purchases and covers 63% of the Mexican population, and the Mexican National Health and Nutrition Survey based on questionnaire responses and manufacturing sector data, particularly the ‘Economic Behaviour of the Industries in the Country’ (EMIM) database. All six studies highlighted that the introduction of the specific SSB tax increased the price of SSB products approximately by 10% in 2014 compared with 2013. Results from one study ( Colchero et al. , 2017 ) showed a decrease in SSB purchases of 5.5% in 2014 and 9.7% in 2015 (average reduction of −7.6% in 2014–15) compared with the 2012–13 period. Another study ( Colchero et al. , 2016b ) based on the same source found a change in SSB purchases of −6% in 2014 compared with 2012–13. The reduction was higher in low socioeconomic status (SES) groups, relative to medium and high SES groups (−9.1% vs −5.5% vs −5.6%, respectively). Another study ( Ng et al. , 2019 ), based on the Nielsen Panel, divided the study population in four groups encompassing all possible consumers of taxed and untaxed beverages: (1) those who had higher (H) purchases of taxed (T) beverages and lower (L) purchases of untaxed (U) beverages (HTLU—and whose consumption choices were considered unhealthier), (2) those who had higher (H) purchases of taxed (T) and higher (H) purchases of untaxed (U) beverages (HTHU—whose consumption choices were also considered unhealthier), (3) those who had lower (L) purchases of taxed (T) and lower (L) purchases of untaxed (U) beverages (LTLU—whose consumption choices were considered healthier) and (4) those who had lower (L) purchases of taxed (T) beverages and higher (H) purchases of untaxed (U) beverages (LTHU—whose consumption choices were also considered healthier). The study compared the pre-tax behaviour of these groups with their consumption levels after the SSB tax implementation. Among others, results showed that, following the SSB tax implementation, the HTLU-unhealthier and HTHU groups (both considered to be ‘unhealthy’ in their consumption choices), reduced their consumption of taxed beverages both in absolute and relative terms and, at the same time, increased their consumption of untaxed beverages. It has been shown that the greatest effect of this consumption shift from taxed to untaxed beverages was observed in the lowest socioeconomic group. A further study ( Colchero et al. , 2016a ) using an alternative data source, notably, manufacturing industry data (EMIM) analysed the changes in SSB and plain water sales in 2014 and 2015 (using the pre-tax period, 2007–13, as a counterfactual). Results suggested a decrease in SSB per capita sales of 7.3% and an increase of 5.2% in plain water per capita sales in the 2014–15 period compared with the counterfactual, reporting an association of the tax implementation with the changes in per capita sales. Overall, results of the studies assessing SSB tax implementation in Mexico reported a decrease in the consumption of taxed SSBs, and that the tax mildly shifted purchases towards untaxed beverages or other products. Some studies ( Colchero et al. , 2016b , 2017 ; Wright et al. , 2017 ) pointed out that effects of tax implementation may be more substantial in the long-term rather than the short-term. This would be because human habit formation is gradual and changing behaviour in light of increased taxation may take time to shape ( Colchero et al. , 2017 ; Wright et al. , 2017 ). Additionally, following tax implementation consumers may switch to cheaper untaxed beverages and this pattern could be better seen over the longer term ( Colchero et al. , 2016b ). The results (measures, intervention and counterfactual) included in the above studies were adjusted for different indicators, mainly seasonality of beverage consumption and socioeconomic factors. Without such adjustments, the results would have been biased by temporary factors.

Ortega-Avila et al. (2018) examined how the implementation of the tax was perceived by a cohort of adolescents. A qualitative study explored the awareness and perception on the introduction of the SSB tax within a cohort of Mexican adolescents, reported most of them were unaware of this policy and that they perceived the 1 peso/l increase as not high enough to shift their preferences and SSB consumption patterns. For those interviewed, alternatives to costly SSB products would mainly be homemade drinks. The study underlined that the impact of the tax could be misperceived by some segments of the population and that this would represent a limitation in changing citizens’ attitudes towards these products. Another study (Álvarez-Sánchez et al. , 2016) focused on the awareness of Mexicans on the SSB tax introduction. Based on questionnaire survey data of >6,000 adults, the study found that people’s awareness and decrease in consumption were directly proportional, i.e. people who were aware of the tax introduction were more inclined to decrease their SSB intake.

Three studies ( Batis et al. , 2016 ; Taillie et al. , 2017 ;Hernández et al. , 2019) focused on the 8% ad valorem tax on non-essential and energy foods in Mexico. One study ( Batis et al. , 2016 ) analysed the difference in the volume purchase of taxed and untaxed packaged food between observed data in 2014 and their respective counterfactual (2012–13). The study showed that, in 2014, the consumption on purchased food was 467 g/per capita/year, compared with the 492 g consumed food predicted by the counterfactual, with the mean volume of taxed food purchases decreasing by 5.1%. At the same time, non-significant variation was found between observed and counterfactual volumes of untaxed food purchases. A difference in consumption between SES groups was detected as well. For the low SES, there was a decrease of 10.2%, while for medium SES the decrease stood at 5.8%. Interestingly, no change in consumption was found in the high SES. However, the study pointed out that it was difficult to infer a causality between the tax implementation and the consumption changes due to database limitations in terms population representativeness (data mainly concentrated in urban areas), and the 2 years’ counterfactual could be considered limited in evidencing changes in consumption patterns. Results from the second study (Hernández et al. , 2019) were in the same direction, recording a decrease of 5.3% on taxed food purchases in 2014–16 compared with 2008–12. At the same time, untaxed food consumption increased by 2.8% during the same period.

The last study focused on the 8% ad valorem tax in Mexico ( Taillie et al. , 2017 ) and was based on the Nielsen’s panel. It analysed how different types of households (low/high income) and consumers (with healthy/unhealthy behaviours or diet) reacted to this tax, by implementing a pre–post study design (2012, prior to tax implementation, to 2015, post-tax implementation). The study reported that the total volume of taxed products purchased declined by 4% in 2014 and by 14.2% in 2015, while the untaxed purchase changes were higher in 2014 (+2.8%) but declined in 2015 (−4.9%). The household subgroup analysis reported that, in the post-tax implementation period (2014–15) compared with the pre-tax period (2012–13), the low-income household group consumption decreased by 1.3%, the high-income household consumption (i.e. those purchasing a lot of both taxed and untaxed products), decreased by 1.2%; consumers, whose consumption patterns were considered to be ‘unhealthy’ (i.e. consuming more taxed products and less untaxed products) decreased their total consumption by 4.9%, while consumers whose consumption patterns were considered to be ‘healthy’ (i.e. consuming more untaxed products and less taxed products) registered no differences in the post-tax period. Overall, the study reported a higher decrease in the second year after the implementation, compared with the first. The authors argue that this could be caused by many factors, probably by a gradual shift in consumer habits or by awareness campaigns on the harmful health impact of these products. The major gap between healthy and unhealthy households in consumption patterns might be explained by the fact that healthy consumers are already less inclined to buy harmful foods compared with those used to buy them. The study confirmed a trend of reduction in the consumption of energy-dense ultra-processed foods after tax implementation in Mexico.

Two studies ( Caro et al. , 2018 ; Nakamura et al. , 2018 ) analysed the impact of the “Impuesto Adicional a las Bebidas Analcoh ò licas” (IABA) related to SSBs in Chile, which was implemented in October 2014. Specifically, in 2014, there was an increase in the tax rate from 13% to 18% on beverages with high levels of sugar (H-SSBs), defined as beverages with >6.25 g of sugar per 100 ml. Conversely, there was a tax decrease for beverages containing <6.25 g of sugar per 100 ml. Both studies showed a decrease of H-SSBs consumption in the post-increase period, compared with the pre-increase period. Caro et al. (2018) reported a monthly per capita decrease in H-SSBs purchases of 3.4% by volume, and 4% by calories, while the volume of L-SSBs increased of 10.7%, based on a post-increase period from November 2014 to December 2015 and a pre-increase period, as counterfactual, from 2013 to October 2014. Nakamura et al. (2018) also reported an H-SSBs monthly purchased decrease of 21.6%, by comparing the post-increase period (November 2014 to December 2015) to a pre-increase period that started in 2011. However, both studies agreed that the small increase in the SSB tax did not impact the population significantly, and that based on the small cohort observed and the short post-tax period it was not possible to assess the causal effect of the tax.

In addition to the research focusing on Mexico and Chile, another study ( Claro et al. , 2012 ) attempted to evaluate price and income elasticity related to SSBs in Brazil. Although, strictly speaking, not a taxation study, the study simulated the effects on consumption of a 1% increase in price and 1% increase in income and analysed SSB taxation practices in Brazil; the study reported that a 1% increase in the price would cause a 0.85% reduction in SSBs product consumption. Additionally, changes in family income would influence SSBs consumption: for a 1% increase in family income there would be a corresponding 0.41% increase in SSBs consumption. Overall, poor households in Brazil would be more than twice as likely, relative to wealthy households, to change their consumption patterns if price and income changed. The study, however, underlined how these estimates were based only on home food and beverage consumption, approximately accounting for 76% of total household expenditure, leaving almost a quarter of purchasing patterns unaccounted for by the analysis.

Fifteen studies evaluated various aspects of tobacco use, i.e. the effect of tax implementation on consumer behaviour, the role of illicit tobacco product consumption, how price and income elasticity were shaped in each country and how elasticity could potentially change or was found to change following tax implementation. Mexico was included in four studies; the country dealt with a tobacco-related reform process which commenced after the ratification of the Framework Convention on Tobacco Control (FCTC) in 2004 and lasted for nearly a decade. Mexico is considered to be a country with a heavy burden of tobacco-related ill-health, reporting a smoking rate of 14.5% among Mexican adults ( WHO, 2015 ). Three of the identified studies ( Saenz-de-Miera et al. , 2010 ; Guerrero-Lopez et al. , 2013 ; Reynales-Shigematsu et al. , 2015 ) focused on the effect of the new tax structure (updated to 2011) on tobacco consumption levels, through country-level surveys and self-reported price of cigarettes by consumers. The research mainly underlined how smoking rates declined by 30% during 2002–15, how adolescent and adult groups reduced tobacco consumption in response to the specific excise tax introduction, and how the reform process uniformly affected all sociodemographic groups.

A narrative review on Argentina ( Goodchild et al. , 2016 ) reported that tobacco affordability rose by 100% between 1997 and 2007, whilst the country experienced sharp economic growth. The study offered significant insights on how the introduction of an excise tax on tobacco would significantly reduce smoking prevalence (it was assumed that a 10% price increase would reduce the prevalence by 3%). Another study ( Ferrante et al. , 2007 ) used a tobacco policy simulation model to evaluate how policies introduced in Argentina, relating to advertising, promotion and sponsorship bans, would have an effect on consumption. The study reported that these policies, regardless of the low level of taxes on cigarettes compared with HICs, produced a relative reduction in tobacco consumption in 2004 compared with 2001.

The literature also provides evidence on the extent of ‘illicit consumption’ of tobacco products and the effect of overall illicit smoking prevalence. Illicit consumption refers to consumption of tobacco products not legally purchased (e.g. counterfeit cigarettes). Three studies ( Iglesias, 2016 ; Iglesias et al. , 2017 ; Szklo et al. , 2018 ), all from the Brazilian context, estimated how illicit cigarette consumption changed after the excise tax implementation in 2012, using national surveys (GATS-Brazil, Vigitel). The studies researched how the excise tax implementation impacted the overall proportion of illicit cigarette use among smoking population or on illicit smoking prevalence, looking at the general population or focusing on adults aged 18 years or older (see Table 2 ). All studies showed a reduction in smoking prevalence, but at the same time, an increase in illicit consumption from 16.9% in 2008 to 32.3% in 2013 was observed and continued to grow until 2016, when the estimated proportion of illicit consumption reached 42.8%. Curti et al. (2015) analysed whether a price increase in tobacco products would encourage smokers to consume cheaper tobacco products in Uruguay, by switching their consumption to illicit tobacco products. The study reported that a 10% price increase would increase by 4.6% the probability of consuming roll-your-own cigarettes over more expensive manufactured legal cigarettes, suggesting that it is relevant to narrow different tobacco product prices in order to successfully reduce overall consumption.

The last point of the tobacco consumption analysis is related to the price and income elasticity of demand, whether the demand for tobacco products is elastic or inelastic and whether tobacco products are normal and necessary goods. Data from five countries (Argentina, Colombia, Ecuador, Mexico, Peru) were identified and based on the evidence provided, both price and income were found to shape household or individual behaviour. Specifically, across all five countries, demand for tobacco products was found to be inelastic (with price elasticity of demand <−1, indicating low responsiveness to price changes; e.g. a 10% increase in the final price of tobacco products would result in a decrease in consumption by <10%). This could occur for various reasons, mainly related to consumer information on the new price, the level of addiction or lack of awareness of the risk related to tobacco products. In terms of the responsiveness of the demand for tobacco products to a change in income, captured by the income elasticity of demand, the evidence from all five countries showed that with an increase in income, tobacco consumption increased less than proportionally. The reported results confirmed that tobacco products are normal goods (income elasticity of demand being >0, with consumers raising consumption levels as their purchasing power increases) (Pindyck et al. , 2018); they were also found to be ‘necessities’ (income elasticity of demand being >0 but <1) ( Table 3 ).

Price elasticityand income elasticityof demand for cigarettes in select Latin American countries

Demand is considered to be inelastic if for an increase in price by 1%, demand declines by <1%. In this case, the price elasticity of demand is negative and between −1 and 0.

If the income elasticity of demand is >0, this indicates a normal good; if the income elasticity of demand is <1 a good is a ‘necessity’, i.e. where income rises by 1% but demand for that good rises by <1%; if the income elasticity of demand is >1, then the good in question is a luxury.

Source: The authors from the literature.

Only one study ( Chavéz, 2016 ) analysed alcohol consumption, and the effect of price elasticities of demand for tobacco and alcohol. The study reported a higher effect based on the price elasticity of demand for tobacco (−0.87) compared with alcohol (−0.44). The study also assessed the elasticity compared with Chilean total expenditure based on the quantity and quality of the goods, finding that the elasticity of alcohol consumption relating to total expenditure was 0.41 (compared with 0.5 for tobacco consumption), meaning that the variation in the quantity of consumed alcohol was relatively inelastic compared with the tobacco when total expenditure increased. If total expenditure declined, high-quality cigarettes and alcohol consumption would also decline, the latter being more sensitive to expenditure changes.

Effect on revenue generation

Nearly all studies on revenue generation (9 out of 10) focused on revenues from tobacco taxation. Two studies approached this topic by considering multiple Latin American countries. One of them ( Goodchild et al. , 2017 ) examined the effect of tax increases on weighted average prices, revenue generation and volume. On average, a 50% tobacco tax increase across the Latin American region would raise weighted average tobacco product prices by 28%, generate US$7 million revenue (+32%), and reduce the volume consumed by 7%; this trend would be traced in nearly all Latin American countries. The other study that considered the entire region ( Garcés et al. , 2014 ) did not analyse a potential implementation but, rather, compared how Central American countries adapted to the FCTC directives. The analysis showed an overall gap that needed to be filled, due to the political and economic complexity of the area, and a lack in prioritization of research on legislation related to tobacco.

Six studies analysed the revenue effect of tobacco taxation at country level. Two of these ( Iglesias, 2016 ; Iglesias et al. , 2017 ) studied how the implementation of two alternative taxation systems (either an ad valorem, or a mix of specific and ad valorem) allowing manufacturers of tobacco products to choose from in the Brazilian context impacted fiscal revenue and, as a consequence, changed levels of illicit consumption. In the Brazilian tobacco tax reform tobacco producers could choose between two regimes: a general regime, similar to the taxation system prevailing since 1999, where the ad valorem rate would have been 45% of the consumer price; and a special regime with a mix of specific and ad valorem rates. The latter has a lower ad valorem rate that could not be higher than 15%. Results were uniform in both studies: although revenue collection more than doubled in the observed period (2006–13) in absolute terms, sin tax introduction led to an increase in the illicit market, both in absolute terms and proportionally to the legal market (illicit daily tobacco consumption increased from 16.6% in 2008 to 31.1% in 2013). Based on that, the study concluded that it would be possible to increase revenue from taxation, despite the increase in the illicit market. A simulation study ( Jimenez-Ruiz et al. , 2008 ) estimated that, with other factors being constant, a 10% price increase of tobacco products would yield an increase in revenue by 15.7% in Mexico. Another study (Rodriguez- Iglesias et al. , 2017 ) reported that despite the changes in real income and the final prices of cigarettes, even a 100% price increase in a low-revenue scenario would be beneficial for revenues and sustainable for the market. A study sampled 15 countries (including Brazil, Mexico and Uruguay from Latin America) to analyse the range of prices paid for cigarettes (Kostova et al. , 2014) and suggested that a uniform high excise tax would be more likely to reduce the range of cigarette prices compared with a tiered tax structure (i.e. where cheaper cigarettes are taxed at a lower rates than more expensive cigarettes) in each of the study countries, all of which were LMICs. Levels of excise tax are one the main components of tobacco prices and price ranges of tobacco products can determine purchase levels. Bardach et al. (2016) adopted a micro-simulation model to assess, among other things, smoking impact on costs associated with a set of cardiovascular, pulmonary and oncology diseases and found that, with a 50% price increase of tobacco products, Peru would collect 3.14 billion of Peruvian Sol (equivalent to US$1.05 billion) in the 10 years following the price increase. Finally, a study ( James et al. , 2019 ) researched how a tax increase in Colombia could potentially impact revenue generation. The tax increase, legislated in December 2016, tripled the specific excise taxes and increased VAT by 3%, leading to a 70% relative price increase in tobacco products. Based on a simulation and following the introduction of the new increases, the net annual gains in tax revenue were estimated at COP$1.26 billion (approximately US$364 million) compared with the pre-tax net annual gains (2016) over a 20-year period.

Sugar-sweetened beverages

The only study ( Sánchez-Romero et al. , 2016 ) addressing the effect of a nationwide SSB tax on consumption simulated how a potential reduction in SSB intake, following a tax increase, beyond revenue generation, would impact on direct diabetes healthcare costs in Mexico in terms of generating potential healthcare cost savings. The simulation was based on two different scenarios, notably a 10% and a 20% reduction in SSB consumption, also taking into account any potential replacement for calorie compensation. Simulation results reported that, with a 10% reduction in SSB consumption, 983 million international dollars would have been saved over a period of 9 years, while a 20% reduction would have led to a saving of 1.9 billion international dollars.

Impact on health improvement

The only included study for this endpoint analysed the sin tax impact on health in Mexico ( Sánchez-Romero et al. , 2016 ). The Mexican population suffers from high rates of diabetes, excess weight and obesity, and cardiometabolic problems, all of which are strongly associated with increased SSB intake ( Sánchez-Romero et al ., 2016 ). In order to quantify how excise taxes on SSBs could lead to changes in health outcomes, Sánchez-Romero et al. (2016) simulated the effects of two scenarios, a 10% and a 20% reduction in SSB consumption, both with a 39% calorie compensation (i.e. still receiving 39% of daily calorie intake through non-SSB foods or drinks), and their impact after 10 years. Results in both scenarios showed a significant reduction in the number of people affected by diabetes, suffering a stroke or a heart attack and an overall reduction in deaths, particularly in the 35–49 age group.

The impact of tobacco on health outcomes was addressed by five studies.

A study on Peru ( Bardach et al. , 2016 ) estimated that in 2015, 31% of all deaths (∼16,833 out of 54,301) in the country were associated with tobacco consumption. The study calculated that a 25% price increase in tobacco through taxation could reduce the number of deaths by 6,695 over a period of 10 years; a 50% price increase would potentially avoid 13,391 deaths, while a 100% price increase would avoid 26,782 deaths over 10 years. A study on Argentina ( Ferrante et al. , 2007 ) developed a simulation model to assess how tax increases in tobacco retail prices would impact avoidable deaths. Two tax increase scenarios were adopted: one at 75% (compared with taxation at 68% in 2007, leading to an overall 28% price increase) and one at 85% (with a final price increase of 113%). With a 75% increase, 1,899 deaths per year would be avoided over a 20-year period (2004–24), and a further 2,911 deaths would be prevented in the 2024–34 period. With an 85% increase, 7,581 deaths per year would be avoided until 2034. In the context of Mexico, despite the ratification of FCTC, the number of deaths associated with tobacco consumption increased from 47,800 to 56,800 in the 2002–13 period ( Reynales-Shigematsu et al. , 2015 ). Through the use of the SimSmoke model, it was estimated that the implemented policies in Mexico (taxation, health warnings, smoke-free air laws, advertising restrictions), would prevent 3,000 deaths in 2013, and contribute to an overall reduction in the death rate by 10,800 in the 2002–13 period. Additionally, the model predicted that the current regulation would prevent 826,000 smoking-related deaths by 2053. Smoking ban regulation and tobacco tax increase were tested by a study ( Jan et al. , 2014 ) for association with the risk of having an acute myocardial infarction (AMI) in Panama. The smoking ban was issued in May 2008 while the tax increase was implemented in November 2009. The study set two pre-tax periods (May 2008 to April 2009 and May 2009 to November 2009) and a post-tax period (December 2009 to December 2010) of intervention as periods of observation and was based on hospital admission data. Results showed that the relative risk of having an AMI was similar in all three periods (first period: 0.982; second period: 1.049; third period: 0.985), underlining how these two policies had no short-term effect on CVD prevalence. A micro-simulation model set in Peru estimated that a 50% price increase in tobacco products would avoid nearly 14,000 deaths, 6,210 cardiovascular events and 5,361 new cancer cases over a period of 10 years ( Bardach et al. , 2016 ). Finally, evidence from Colombia ( James et al. , 2019 ), simulating whether the 2016 average price increase in cigarettes might result in additional life-years gained (LYG), found that over a period of 20 years the impact would be 191,000 additional LYG, of which 50% would come from the two lowest income quintiles and only 28% from the the highest income quintile.

Risk of bias assessment results

Table 4 shows the low, medium, high and unclear risk of bias occurring in each domain and categorizes high risk of bias in sub-categories. Each sub-category has a number that is included in the risk of bias table and represents the specific type of risk of bias. Due to the nature of the included studies the ROBINS-I tool was adopted, specifically designed to assess risk of bias in non-randomized studies. Twenty-eight out of 34 studies reported at least a medium/unclear or high risk of bias in at least one of the seven dimensions we have considered (confounding; selection of participants; intervention classification; deviation from intended intervention; missing data; outcome measurement; and selection of reported results). Most of the medium/high risk of bias were related to the outcome measurement (13 studies reported high risk, while 5 reported medium/unclear risk), followed by missing data (10 studies reported high risk, 2 reported medium/unclear) and deviation from intended intervention (9 studies reported high risk while 2 reported medium/unclear). Conversely, only 2 studies reported risk of confounding bias (1 high risk and 1 medium/unclear), and 3 reported intervention classification bias (0 high risk and 3 medium/unclear). Results showed a relevant presence of moderate or high risk of bias specifically in the missing data and the outcome of measurement domains. Missing data bias was primarily due to the lack of information on geographical coverage, production chain (manufacturer or retailer data), economic and social indicators. Bias in outcome measurements, due to self-reported data and underestimation of intervention and/or comparators, were often linked to a vague composition of data. A more detailed description of risk of bias is available in Table 4 (and more detailed information is provided in Supplementary Appendix Table SA1 ).

Sin taxes in the Latin American context: summary of risk of bias assessment

The table above summarizes the risk of bias level of each study. Green, yellow and red dots, respectively, indicate low, moderate/unclear and high risk of bias according to each domain.

This SLR identified and assessed the impact of sin taxes on goods that are considered to be harmful from a public health perspective in Latin American countries from 2000 to 2018, by analysing the evidence based on three endpoints: effect on consumption, effect on revenue and health impact and is the first that is doing so in the Latin American region. Twenty-three out of 27 studies examining consumption effects confirmed that the application of a sin tax was inversely related to consumption levels. In the case of SSB tax in Mexico and its effect on consumption, this has been analysed by seven studies, six of them confirming the inverse relationship between tax introduction and consumption levels. Evidence from 10 studies analysing the revenue endpoint is aligned in supporting excise tax implementation or increase in the region to support additional revenue generation in a sustainable manner, providing, among others, case studies focused on Argentina, Brazil, Colombia, Mexico and Peru. Finally, five out of six studies focusing on the likely impact on health showed through a series of simulation models that potential sin tax implementation or increase would avert thousands of deaths, particularly from CVD and cancer, as well as lead to hundreds of thousands of additional LYG in a relatively short timeframe. Table 5 provides a summary of sin tax effect(s) or impact(s) and the extent of the effect(s) or impact(s) reported by each study. None of the studies reported a negative effect or impact on any of the three endpoints.

Sin tax implementation/increase and effects on consumption, revenue generation and health: summary results from the literature

A positive effect in the consumption section means that there is a decrease in consumption after tax implementation, while a negative effect means that no decrease in consumption is detected. With regards to the health and revenue sections , a positive effect means that there are health improvements or new revenues with tax implementation and vice versa.

Results and conclusions on the association between sin tax implementation or increase and decrease in the consumption of harmful goods for public health, improved population health conditions or new sources of revenue in Latin America are aligned and compatible with findings from the literature in other geographical areas. An earlier systematic review ( Wright et al. , 2017 ) with different criteria analysing 102 studies, focused on how consumption levels and revenue generation could be affected by public health taxes. This review did not focus on a specific geographical area, but the vast majority of the studies included came from HICs. Nevertheless, it confirmed the effectiveness of sin taxes as a tool for reducing harmful goods consumption, while revenue collection would be dependent on a variety of factors, e.g. the effectiveness of taxation in changing behaviour. Another recent systematic review ( Redondo et al. , 2018 ) has analysed results from 17 studies examining how the impact of taxes could shape SSB consumption. Likewise, the inverse relationship between SSB consumption and taxation levels was confirmed. Our study reinforces all these findings particularly with regards to the decrease in consumption and, additionally, expands the research rationale by investigating the potential association between sin tax introduction and likely health outcomes.

However, our study also portrayed a very complex context in which the policy-making process faced many obstacles to achieve the ideal tax reforms required for this purpose. Latin America consists primarily of middle- and upper middle-income countries, with significant consumption of sugar, alcohol and tobacco. Despite high rates of tobacco consumption, tobacco taxation is generally underutilized compared with taxation levels in HICs ( Sandoval et al. , 2016 ). Retrospective analysis of sin tax introduction and simulations confirmed that the current level of taxation in the region could be increased considerably and this could lead to a sustainable generation of FS. In this sense, countries in the region could effectively pursue one or more of the ways proposed in the FS analytical framework, e.g. introduce or raise taxation levels whilst also trying to improve healthcare efficiency. The extent to which sin taxes can successfully fund health care depends on many factors, including the type of sin tax, the response of consumption to price increases, captured by the price elasticity of demand, income levels, the burden of disease, the extent to which relevant taxes are hypothecated (earmarked) and, interestingly, the broader political consensus among stakeholders on choices related to public expenditure ( Clements and Gupta, 2012 ), which, in turn shapes the political feasibility of introducing additional taxes. Lack of consensus has been showcased as an important factor in the Argentinian context, where the lobbying power of tobacco producers has diverted the government from adopting the measures included in the FCTC despite wide smoking prevalence in the country and the elevated burden of disease directly or indirectly attributable to tobacco ( Mejia et al. , 2008 ). Argentina, with one of the lowest tobacco prices in the world (Rodriguez-Iglesias et al. , 2018) also experienced an increase in affordability over the last decade. Brazil is the third major producer of tobacco in the world ( Gigliotti et al. , 2014 ), and is also facing extensive levels of tobacco lobbying. This can cause tensions among stakeholders and influence, or even shape, taxation policy.

Many of the included studies explicitly reported how even a strong tax increase in some products that are classed as (potentially) harmful would lead to a rise in total tax revenue, therefore, it would be an efficient way to raise revenue. However, it has also emerged that in some cases, particularly as concerns tobacco and alcohol, an increase in taxation would not automatically generate a certain amount of revenue, since levels of consumption might be different from expected or because the illicit market could grow and replace the legal market, at least in part. Consequently, there are broader considerations shaping the discussion around the introduction of sin taxes, in this case, law enforcement to counter the effects of illicit trade. On the other hand, the long-term health consequences of continued consumption of tobacco, alcohol or sugary drinks can be considerable. Countries like Mexico face significant health challenges related to diabetes, with the highest prevalence among OECD countries ( Levy et al. , 2018 ), obesity and CVD, some of which is attributable to high consumption of SSBs over long periods of time.

Guidelines from inter-governmental organizations on sin tax implementation have been only partially followed by Latin American countries. The WHO FCTC (2003) and the MPOWER Report (2008) state that an increase in taxes on cigarettes, country promotion of bans on advertising, laws on smoke-free areas, health warnings, media campaigns and policies for treatment cessations, if applied in a systematic way, would significantly reduce tobacco consumption rates in adults ( Paoletti et al. , 2012 ; Levy et al. , 2018 ). In particular, article 6 of the FCTC reports that the increase in tobacco price through excise taxation is the most cost-effective single measure in order to reduce the demand for tobacco and contribute smoking cessation improvement ( WHO, 2003 ). These international guidelines are interfacing with a complex regional scenario, which is characterized by a particularly challenging epidemiological reality, significant levels of production of alcohol, tobacco and sugar and a timid political consensus over guidelines such as the ones by WHO in some countries.

The consumption level of harmful goods, the related burden of disease and the difficulties in the tax structure reform in Mexico were a clear example of how consumer habits, state of health and state regulation can have significant impact on outcomes in the health of the population and in the long-term sustainability of the health system. At the same time, even with a partial reform compared with what FCTC recommended, evidence from Mexico showed how a wider approach that included taxation and an organized set of other measures, could lead to a sensible improvement in all the endpoints considered.

The role of data collection and research related to sin taxes and their impact represented another relevant point which emerged from our study. Funded studies included in our systematic literature review received grants only from government organizations [e.g. National Institutes of Health (USA), the Brazilian Ministry of Health], international organizations (e.g. the World Bank), non-Latin American non-governmental organizations (e.g. Bloomberg Philanthropies) or academic institutions (e.g. University of South Carolina). Of course, in many countries, general research may be conducted by manufacturing industries ( Chavéz, 2016 ; Iglesias, 2016 ) and, as such, could represent a source of bias as it represents corporate interests. Academic research leveraging country-level data appears to be limited as the only relevant sources are national surveys, often not including rural areas or relying on self-reporting methods. This creates a high risk of bias for researchers and policy-makers and has been already highlighted with regards to beverage industry statistics, which can be misleading and ‘fail to account for population or economic growth’ ( Colchero et al. , 2017 ). The same was observed in the case of tobacco and how industry lobbying activities can strongly influence policy-making. Studies exist discussing how the tobacco industry concurred with the non-implementation of tobacco taxes in many parts of the world, despite the robust scientific evidence supporting their implementation ( Jha and Chaloupka, 2000 ). The case of Argentina may represent the most telling example in Latin America of the relationship between the state and the tobacco industry that is weighted in favour of manufacturers’ aims.

For these reasons, the implementation of sin taxes varies across settings based on the specific targeting of goods, the effective amount of tax, the choice between ‘per unit’ vs ‘ad valorem’ taxes, and the use of potential FS created beside the underlying broader rationale that justifies sin tax implementation. Research has emphasized that the specific country framework with regards to overall health state, socioeconomic composition, consumer habits, policy-making processes and orientations determines the most effective pathway for a successful sin tax implementation in the case of SSBs ( Brownell et al. , 2009 ; Claro et al. , 2012 ). That said, a specific definition of what products are targeted is necessary to avoid side-effects in consumption, such as provoking the use of other similar harmful goods (i.e. goods of dubious quality that might not be captured by the tax reform, such as low-quality foods or beverages).

The definition of the appropriate amount of tax is another controversial decision. Research on cardiovascular risk in young adults ( Duffey et al. , 2010 ) concluded that only high rates of taxation would produce a significant change in consumption; this is consistent with recommendations made by many of the studies in this study.

The decision of adopting a ‘per unit’ vs ‘ad valorem’ tax is usually at the forefront of the debate. A per-unit sin tax is easier and more flexible to implement from a government regulation perspective than an ad valorem tax; generally, LMICs are encouraged to implement per-unit taxes because of limitations in law enforcement or administrative capacity. The disadvantages of this type of tax relate to the frequency and timing of revisions in order to ensure the tax remains effective. In fact, manufacturers can try to adjust the burden of the tax on some segments of the production process and, through that, reduce the price increase of the product to the consumer. At the same time, consumers can shift their consumption to lower-priced goods or to other similar products, keeping in mind, however, that for some products (e.g. tobacco and alcohol) substitution may be difficult. An ad valorem tax has its advantages because it easily adjusts to inflation changes, it is more visible and directly payable to the authorities.

Notwithstanding the discussion on the relative merits of per unit or ad valorem taxes, the predicted revenue from the tax is uncertain and requires careful monitoring. An analysis of European Union countries has demonstrated that per-unit taxes have a better yield than ad valorem taxes on retail cigarette prices ( Delipalla and O'Donnell, 1998 ; Goodchild et al. , 2017 ). However, the overall preference of one tax over the other depends on specific country features and the specific objectives of policy-makers. Other studies ( Wright et al. , 2017 ; Whitehead et al. , 2018 ) suggest that specific taxes would be more effective in reducing the consumption of certain goods since an ad valorem tax could potentially shift consumption to cheaper and lower-quality goods, or induce manufacturers to reduce prices in order to maintain consumption levels. A final, broader, point of discussion relates to the implications of sin tax introduction on choice and on its regressive nature. Two studies ( Brownell et al. , 2009 ; Claro et al. , 2012 ) claim that the benefits of sin taxes, especially on health outcomes, outweigh their dis-benefit on choice. With regards to their regressive nature, products subject to sin taxes, such as cigarettes, tend to cause greater harm to lower socioeconomic groups, and although the latter are impacted financially more heavily than higher socioeconomic groups, the incentive to behavioural change is greater.

Study limitations

The results of this study reflect Latin American countries’ economic, political and epidemiological features and reality; therefore, the results may not be generalizable to other geographical regions. Furthermore, the analysis compared countries with significant differences in regulation, epidemiological frameworks and economic conditions, while many studies analysed policy changes in just a few countries. Additionally, most studies analysed sin tax impact within a relatively short space of time and lack long-term evidence. Despite all the above, the broader results of this study are consistent with most of the recent academic literature and underline many potential benefits of sin tax implementation in middle-income countries.

This study has confirmed the role of sin taxes in the Latin American context as a valid policy option for reducing consumption of harmful goods, generating additional revenue and potentially improving health outcomes. The majority of studies reported that implementation of sin taxes in Latin America resulted in reductions in harmful goods consumption, increases in revenue generation and a positive—albeit simulated—effect on health outcomes. The results on the risk of bias assessment and the analysis of the included studies suggested that future work on this topic would require more accurate data collection processes that go beyond weak study designs that may be susceptible to high risk of bias. This would require an increase in efforts to promote research and address stakeholder interests. Apart from improving data collection, a broader general effort is necessary in producing research on this topic; Latin American countries are gradually investing more in health and are aware of the costs associated with tobacco, alcohol and sugary beverages, but are still far from reaching HIC levels in terms of investment in health and tax intervention to mitigate the negative effects of these products.

Supplementary data are available at Health Policy and Planning online.

Conflict of interest statement . None declared.

Ethical approval. No ethical approval was required for this study.

Acknowledgements . We are grateful to the comments and suggestions of two anonymous referees. All outstanding errors are our own.

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Can we tax unhealthy habits away.

Boosting the cost of sodas and sugary drinks might not necessarily add up to better health, say USC experts.

Alexander Hamilton was one of the first to try convincing Americans to pay for their sins.

In 1790, the U.S. statesman proposed a tax on whiskey, an unapologetic move designed to help the upstart nation tackle Revolutionary War debt. Hamilton’s proposal not only spurred the Whiskey Rebellion but also introduced the concept of sin taxes into the American consciousness.

More than 230 years after Hamilton’s novel overture, sin taxes — levies on goods seen as harmful, like sugary drinks, cigarettes, plastic bags and alcohol — stir intense public debate.

Proponents argue that they address the societal costs that come from bad behaviors. The health care costs of diseases related to tobacco use serve as one prominent example. They also say it’s a win-win: Why not nudge consumer behavior toward healthful habits while also boosting funding for programs that benefit the public? Others call sin taxes nothing more than a legislative cash grab that can hobble businesses. Not only do the taxes infringe on individual rights, they argue, but they often prove to be regressive — meaning that they’re harder on the poor.

As policymakers and economists try to quantify the results of unhealthful human behavior in dollars, can hitting people in the pocketbook create better habits and a better world? Do sin taxes work? Here’s what USC experts have to say.

The Obesity Researcher

Over the last 25 years, Children’s Hospital Los Angeles’ Michael Goran has watched childhood obesity rates rise and the quality of children’s diets decline. Worried by what he saw, the researcher began investigating what happens when children eat a sugar-rich diet — a contributing factor in weight gain — while they’re growing.

He points to one noteworthy modifiable culprit in particular: added sugars. About 70% of processed foods and 80% of snack foods contain added sugar, says Goran, professor of pediatrics at the Keck School of Medicine of USC.

The single largest source of added sugar in the average American’s diet isn’t food, though. It’s soda and sugar-sweetened beverages, according to the National Cancer Institute . With more than 60% of young people downing one of these drinks daily, Goran understands why the beverages have emerged as a convenient target for taxes.

Still, he has mixed feelings on these taxes, which are now levied in U.S. cities like San Francisco, Philadelphia and Chicago.

“It’s concerned me all along that taxes are limited to sugary beverages, when there’s an increased prevalence of added sugars throughout the diet,” says Goran, the Dr. Robert C. and Veronica Atkins Chair in Childhood Obesity and Diabetes and co-director of the USC Diabetes and Obesity Research Institute.

He remains unconvinced that modest soda taxes will reduce consumption enough to improve human health. But the levies are a reasonable place to start, he says. He hopes that more comprehensive efforts — driven by public education about added sugars — take hold, especially for infant formulas and foods.

“Ninety percent of toddlers consume added sugars in any given day, so we have to attack this problem earlier in life,” he says.

In California, Goran has been involved in dialogue with state legislators and other public health leaders about the potential use of warning labels on products with high sugar content.

“Warning labels make a lot of sense,” he says. “What’s wrong with giving consumers information?”

The Health Care Economist

It would be easy to point to Americans’ decreased tobacco use, one of the most significant public health stories of the last generation, as an example of what soda taxes might accomplish. But Dana Goldman doesn’t buy the comparison. He holds the Leonard D. Schaeffer Director’s Chair of the USC Leonard D. Schaeffer Center for Health Policy and Economics.

First, Goldman says, stiff taxes on tobacco made it harder for many cash-strapped teens to try cigarettes enough to get hooked on them. But most Americans develop a taste for sugary drinks in childhood, before they have to pay for them.

Second, the dramatic drop in tobacco use coincided with other initiatives, including robust public education and warning labels. Taxes alone didn’t curb the habit, says Goldman, Distinguished Professor of Public Policy, Pharmacy and Economics at the USC School of Pharmacy and the USC Price School of Public Policy.

Finally, he cites a key difference that remains a fundamental issue for soda tax advocates: While the negative effects of tobacco stand clear and well established, consuming food (and calories) is a routine —  and necessary — part of everyday life. Scientists know that the way some excess sugars are metabolized in the body contributes to an increased risk of chronic diseases such as type 2 diabetes, cardiovascular disease and fatty liver disease. However, they can’t say definitively that the calories from sugary drinks are more harmful than calories from other junk foods.

Goldman applauds several cities’ experiments to curb consumption of sugar-sweetened drinks, but he presses for more time and research to assess how these taxes impact long-term behavior. Two years after Philadelphia’s soda tax was introduced in 2017, researchers at Stanford and Northwestern universities and the University of Minnesota found that few Philadelphia consumers swapped soda for more-healthful (and untaxed) beverages such as water as a result. But many drove elsewhere to buy sugary drinks.

The results could shift as consumers adapt to the taxes over time — or not. It took years to see whether the campaign against tobacco worked, Goldman notes, and that will likely apply to soda taxes as well. “And if we impose a soda tax and people still drink soda, it runs the risk of becoming regressive over time,” he says. A higher price puts a bigger tax burden on people who earn less.

“A reasoned view of this requires more research on effective interventions that change behavior, including the taxes,” Goldman says. “With that, we can then have more confidence in the policy.”

The Public Finance Expert

Michael Thom once assumed that sin taxes curb unhealthful behavior. But his subsequent research has made him skeptical. The public finance and taxation expert — and author of the book Tax Politics and Policy and a forthcoming one on sin taxes — expresses concerns about the science supporting levies such as the ones on sweetened drinks. “Are we so sure soda is driving obesity?” he asks.

Beyond health concerns, the associate professor at USC Price also notes that sin taxes can be a counterproductive way to raise revenue. The money collected often is funneled back to support interest groups that lobby for these very taxes. There can also be unintended, costly consequences like spurring the rise of black markets for taxed goods.

Consider, too, the taxes and bans on single-use plastic shopping bags that have been enacted in many cities to reduce plastics in the environment. Stores began charging customers for paper bags in part to push customers to bring their own. But a reusable sack made from cotton — which requires significant water to grow — must be reused 131 times before it is better for the environment than a single-use bag, according to the U.K. Environment Agency .

Policymakers, Thom continues, tend to view sin taxes as a tool to raise revenue without cutting spending. Or they may use them as a way to skirt political fallout from increasing property taxes or sales taxes, which touch more people.

“It’s as if policymakers are saying, ‘Don’t drink, smoke or gamble, but we would appreciate if some of you do, because we need the money,’” he says. So what does the future hold? He foresees these taxes becoming more prevalent — especially if policymakers use them as a convenient compromise to stricter all-out bans on the products.

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Sin Taxes, Their Pros and Cons, and Whether They Work

If Wine Is Taxed, Why Isn't Soda?

Federal Sin Taxes

State sin taxes.

A sin tax is an excise tax on socially harmful goods. An excise tax is a  flat tax  imposed on each item sold. The most commonly taxed goods are alcohol, cigarettes, gambling, and pornography. Excise taxes are collected from the producer or wholesaler. They drive up the retail price for consumers.

Key Takeaways

• A sin tax discourages activities that create socially harmful consequences
• It raises the activity's cost so that fewer people do it
• The revenue helps states pay for the costs resulting from the additional harm to the public good
• Some sin taxes are regressive because the poor pay a higher percentage of their income

There is a federal excise tax on cigarettes, alcohol, and gambling winnings.       There are also federal excise taxes on gasoline, airline tickets, and some health-related goods.

In 2017, federal excise taxes generated $83.8 billion or 2.5% of federal tax revenues.   Of that, $13.8 billion were cigarette taxes. The tax adds $1 to each pack of cigarettes.

Alcohol taxes contributed $9.9 billion in federal revenue. Liquor is $13.50 per proof gallon. Each proof gallon is a liquid gallon that is 50% alcohol. Wine is $3.40 per gallon. Beer is $18 per barrel, although micro-breweries pay $7 per barrel.

States can also charge sin taxes. In 2014, states collected $32.5 billion in sin taxes.   They collected $16.9 billion in cigarette taxes. They received $6.1 billion for liquor, wine, and beer sales. They received $9.5 billion in taxes on gambling, not including state lottery revenues.

On average, sin taxes contributed just 3.8% of total state revenue. Some states rely on sin taxes much more than that.

Rhode Island depends on sin taxes for 15.9% of its revenue. That's because it has two gambling casinos. It beat the gambling capital of the world, Las Vegas. Nevada collects $900 million in taxes from casinos, but sin taxes only contribute 14.8% of revenue. This state income allows Nevada to waive income taxes on its residents.

The national average sin tax for cigarettes is $1.58 per pack, according to research done by the Arizona Daily Sun.   But that ranges from $0.60 a pack to $3 a pack. The lowest rates are in the tobacco-growing states of Georgia, Kentucky, North Carolina, and Virginia. They also have the highest smoking rates.   Kentucky is No. 1, with 25.9% of the population who smoke. West Virginia is second, at 25.7%. Georgia has 17.7%, North Carolina has 19.0%, and Virginia has 16.5%.

The national average tax for liquor is $4.56 per gallon. It's $0.85 for every gallon of wine and $0.29 for each gallon of beer.

The two states with the highest cost of living also have the highest sin tax rate.

Alaska charges $12.80 for every gallon of liquor and $2 for each pack of cigarettes. Hawaii is second, charging $5.98 for each gallon of liquor and $3.20 for each pack of cigarettes.

Wyoming and Missouri have the lowest sin tax rates. Wyoming has no liquor tax and only charges $0.60 for each pack of cigarettes. Missouri imposes $2 on each gallon of liquor and $0.17 on each pack of smokes.

Although there might be good reasons to impose sin taxes on society, some of these taxes have their downsides as well. Here are the pros and cons of imposing sin taxes.

The taxes discourage unhealthy behavior.

They pay for some of society's costs.

They are popular with voters.

The taxes aren't high enough to eliminate the behavior.

They don't completely pay for the costs to society.

They are subjective, as other harmful substances are not taxed.

There are three arguments in favor of sin taxes. They discourage unhealthy behavior, they pay for society's costs, and they’re popular with voters.

Sin taxes discourage people from unhealthy behavior.   In 2009, the federal government raised cigarette taxes by $0.62 a pack. Teenage smoking rates fell by 10%, and overall cigarette sales dropped 8.3%. Between 2005 and 2015, the percentage of people who smoked fell from 21% to 15%.

For example, a 10% tax on cigarettes reduces demand by 4%.   This reduction in demand is even more pronounced among young people. A 10% tax reduces smoking among those aged 12 to 17 by 11.9%.  

Why do states want to reduce smoking? Lung cancer is the leading cause of cancer death.

Between 80% and 90% of lung cancer deaths are due to smoking.   Kentucky, the state with the highest tobacco use, has one of the highest rates of lung cancer.  

Sin taxes help states pay the cost of treating the public health consequences of smoking, drinking, and gambling. But states don’t spend as much of this tax revenue on health care as they could. It covers some of society's cost of educating people about lung cancer.

Sin taxes are more politically viable than raising income or sales taxes. According to the Campaign for Tobacco-Free Kids, national and state opinion polls have "consistently shown broad voter support" for tobacco tax increases.  

Sin taxes aren't high enough to work. If states really wanted to eliminate the behavior, they would raise the tax until it was high enough to discourage most people from picking up the habit, but not high enough to encourage a black market.

Sin taxes aren't high enough to offset the behavior's cost to society. If they were, they'd be a  Pigouvian tax .

An example of this type of tax is the carbon tax . Britain imposed a carbon tax, prohibitive enough to force utility companies to switch from fossil fuels to natural gas. As a result, greenhouse gas emissions in the United Kingdom drastically fell to late 19 th century levels. If the carbon tax were just a sin tax, its cost wouldn’t be high enough to compel companies to look for cleaner alternative fuel sources. 

Sin taxes are subjective. Lawmakers decide that some health issues, such as cigarette and alcohol addiction, should be taxed and others shouldn't. Other so-called sins, such as opium and heroin addiction, aren't taxed but are simply declared illegal. Other addictions, such as sugar, aren't taxed even though they cause health problems such as diabetes.

In 1776, Adam Smith wrote that taxes on cigarettes, rum, and sugar are appropriate.   These commodities are not essential for life but are widely consumed. The federal government began taxing tobacco during the Civil War.  

In the 1920s, cigarette taxes became widespread as advertising doubled the number of smokers. In 1951, the federal tax was raised to $0.08 per pack to help finance the Korean War. In 1983, it doubled to $0.16 a pack. By 2019, it had reached $1.0066.

Congressional Budget Office. “ Increase All Taxes on Alcoholic Beverages to $16 per Proof Gallon ,”

H&R Block, The Tax Institute. “ Gambling Winnings Tax ,”

National Center For Biotechnology Information. “ Tobacco Taxation in the United States ,”

The Tax Policy Center, Briefing Book. “ Key Elements of the U.S. Tax System ,”

Governing the Future of States and Localities. “ Sin Tax Revenues by State ,”

Arizona Daily Sun. “ Sin Taxes by State ,”

Centers for Disease Control and Prevention. " Smoking and Tobacco Use State Fact Sheets ,"

NCBI. PubMed.gov. “ Effectiveness of Tax and Price Policies in Tobacco Control ,”

PMC, U.S. National Library of Medicine, National Institutes of Health. “ Effects of Tobacco Taxation and Pricing on Smoking Behavior in High Risk Populations: A Knowledge Synthesis ,”

Campaign for Tobacco-Free Kids. “ Raising Cigarette Taxes Reduces Smoking, Especially Among Kids (And the Cigarette Companies Know It ,”

National Cancer Institute at the National Institutes of Health. “ Tobacco ,”

Centers For Disease Control And Prevention. “ Leading Cancer Cases and Deaths, Male and Female, 2016 ,”

Campaign for Tobacco-Free Kids. " Voters Across the Country Support Significant Increases in State Cigarette Taxes ,"

Annual Review of Public Health. " The Use of Excise Taxes to Reduce Tobacco, Alcohol, and Sugary Beverage Consumption ," Page 188.

Institute of Medicine (US) Committee on Preventing Nicotine Addiction in Children and Youths; Lynch BS, Bonnie RJ, editors. " Growing Up Tobacco Free: Preventing Nicotine Addiction in Children and Youths. Chapter 6. Tobacco Taxation in the United States ,"

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Religion & Liberty: Volume 4, Number 2

The economics of sin taxes, by james sadowsky • july 20, 2010.

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“Sin Taxes” are so called because they are levied on those commodities, such as tobacco and alcohol, which are the objects of widespread disapproval. “Such taxes,” Paul Samuelson says, “are often tolerated because most people–including many cigarette smokers and moderate drinkers–feel that there is something vaguely immoral about tobacco and alcohol. They think these ”sin taxes“ stun two birds with one stone: the state gets revenue, and vice is made more expensive.”

“Sin Taxes” is not a technical term in economics. They are simply a form of excise tax. What, then, is an excise tax? It is a tax levied on some but not on all commodities. This is how it differs from the general sales tax, which is levied on all products (with certain minor exceptions). This means that it is levied in addition to the sales tax. Excise taxes have a long history. Remember the infamous salt tax under the French monarchy? There was the notorious tax on tea which was levied in the American colonies, which led to the Boston Tea Party and prepared the way for the American Revolution. Students of American history will recall the Whisky Insurrection, which occurred during the administration of George Washington. This rebellion grew out of resentment over an excise tax on whisky.

The long run effect of an excise tax is a reduction in the supply of the commodity on which the tax is levied. This in turn tends to lead to an increase in the price that consumers have to pay. How does this work itself out? If those who market the item continue to produce it in the same quantity, they will not be able to put up the price. If the consumers had been willing to pay the original price plus the tax, the producers could successfully have charged that amount in the absence of the tax. This would show that they had been charging less than the traffic would bear. And why not charge more for the product? After all, would they not have been taking advantage of any inelasticities of demand before the imposition of the tax?

So, if they continue to sell the same amount of the product on the market with the newly imposed tax, they will be unable to get any more than the old price. Since this price will not compensate them for the now higher costs of doing business, some firms will have to reduce the supply of the goods in question. The exiting of marginal firms from the industry as a result of the higher taxes contributes to the reduction of supply. This highlights the fact that producers do not directly control the prices at which their products will sell. Supply and demand determine the selling prices.

It is only by altering the supply or the demand that they are able to modify the price. And for all practical purposes we can rule out increasing demand as a means to offset higher production costs. Why? Because if manipulating demand was possible, they would have done so before the increase in production costs. So what changes the price is the diminution in the supply of the commodity. And, of course, this decrease in supply means that less of the article will be consumed.

What, then, are we to think of excise taxes? That depends, to no small degree, upon what we think of taxes in general. What is their purpose? Generally, it is to raise revenue for the government. In that case, we have to ask ourselves whether we want the government to have that revenue. The purpose of this revenue is to finance government spending. It is the spending rather than the removal of the money from our pockets that constitutes the main problem. Here is how Milton Friedman puts it in Tyranny of the Status Quo: “However the government gets the money it spends, the goods and services that it buys, or that are bought by the people to whom it transfers money, are thereby not available for other use. Those goods and services–not the pieces of paper that pay for them–are the real cost of government to the taxpayers.”

If the government were to take the money and toss it into the furnace, the main effect (supposing even handed taxation) would be a decrease in the money supply. The remaining money would be sufficient to buy the same amount of goods and services because of the consequent reduction in prices. What matters, therefore, is the government’s take in real terms: the goods and services that are no longer available and the consequent increase in prices. All the economist can do is to point out these costs. Whether they are worth bearing is a judgment call of another sort.

But here is a fact which escapes the notice of most people. It is not the case that the goods and services delivered by the government are in addition to the goods and services that were available before the government spending. They are instead of goods and services that would be otherwise available. Even people who do not pay taxes find themselves paying for these goodies in the form of higher prices for the things they really want. Politicians typically do not inform their constituencies of the cost that the benefits entail. When asked whether we want these things, we ought always to ask ourselves: “instead of what?” If people did this, they would be much less willing to endorse the current amount of government spending.

As we mentioned before, people are sometimes willing to accept excise taxes on such ‘sinful’ articles as tobacco and alcohol out of a feeling that these are a legitimate punishment for such indulgences. It is, therefore, not surprising that the government should eagerly tax these particular articles.

Sometimes, of course, the announced purpose of these taxes is to discourage the use of the product. They indeed do so if only because they decrease the quantity of the good. Many will wonder whether such paternalistic activity on the part of the government is warranted. They will ask themselves what makes politicians better judges of what is good for us then we ourselves or those persons in whose judgment we have confidence. Not only that—will the government stop there? Most likely not. The government is now threatening to move in on the use of vitamins and other nutritional items. We have come a long way from the days when it was accepted that the sole purpose of government was to protect the rights that were enumerated in the Declaration of Independence.

On occasion, ‘sin taxes’ are defended because supposedly they both raise revenue and discourage the use of the sinful product. As John Bloom, the American Cancer Society’s policy director said, “Canada has proven that tobacco taxes save lives and raise revenue.” But one might ask whether a collision course is imminent here. Sin taxes do not raise revenue unless people use the product, and they do not save lives unless people avoid the product. Will not many of those who want to raise the revenue want people to commit the sin of using the product?

We can take comfort in the fact that a backlash seems to be finally taking place. According to the Feb. 9, 1994 New York Times, the Canadian Prime Minister, Jean Chretien, announced that Canada was slashing taxes on cigarettes to try to stamp out widespread smuggling from the United States, where taxes are currently about one-fifth as high. This shows that there are limits to what people in our day are willing to accept. Perhaps the great achievements of Thatcher-Reagan is not their legislative successes, but their shifting of the burden of proof from the private sector to the government.

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• Arts & Culture

Understanding the Effects of Sin Taxes

By Regina Stracqualursi

Sin taxes are taxes placed on activities or goods deemed harmful to society, such as cigarettes, alcohol, and gambling. This type of tax can reduce the overall consumption of harmful goods and activities, while still serving as revenue for the government.

“It is designed to generate revenue from something that might have a negative cost on society,” said Thomas Shohfi, assistant professor in the Lally School of Management at Rensselaer Polytechnic Institute, who recently led research that found that such taxes have negative consequences on those not paying them. The study builds upon Shohfi’s previous work utilizing alternate data sources to gain new insights.

Conducted in collaboration with researchers from Arizona State University and North Carolina State University, the research zeroed in on the taxicab market in New York City, looking at ride-level data from a period of time before and after the federal tax on cigarettes was raised, and found that riders, in turn, faced other penalties, such as being charged a higher rate.

“One of those unintended consequences, especially with excise taxes, is the potential for people to believe the targeted taxes are unfair, to believe someone else should pay for it, and to change their behavior to make others pay for the increased tax,” said Shohfi.

The research provides insight into why the fraudulent behavior takes place in the wake of sin taxes, including the notion that such taxes are unfair and the consequential desire for people to want someone else to pay for it. “People feel like they’re negatively impacted by this so they take it out on other people,” said Shohfi.

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Tax Your Sins, Experts Say

• First Online: 01 December 2020

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• Michael Thom 2  

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This chapter explains how sin taxes became a near-permanent strategy for governments to alter individual choice. It describes how sin taxes evolved from a politically- or religiously-motivated policy to the present-day conventional wisdom, which holds that sin taxes serve as economic penance for externality-generating choices and as a correction for cognitive biases. It illustrates how the conventional wisdom traces to the progressive era and its belief in the power of experts to diagnose and cure societal ills, especially those involving public health. The chapter contrasts that vision against criticism that paternalism overvalues experts’ abilities and that, despite its success in politics, paternalism tends to fail in practice.

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Sin taxes have, in the past, been referred to as sumptuary taxes, which were part and parcel of sumptuary laws dating back centuries that sought to discourage choices deemed immoral by governing authorities. In some instances, sumptuary laws did not target intrinsically sinful choices but instead attempted to enforce a class system. For example, certain laws banned the poor from wearing types of clothing that were typically worn by the wealthy. Other laws, particularly during the reign of Edward I in England, sought to curb meat consumption. In 1216, he proclaimed that too many “persons of inferior rank” imitated the “great men” of the time by eating an “outrageous and excessive multitude of meats,” which led to “many great evils.”

That the taxes were often levied on only a few items did not mean the burden was intended to fall on a small number of individuals. In his seminal Wealth of Nations , Adam Smith in 1776 remarked that “sugar, rum, and tobacco” were worthy of taxation not only because of their harm, but because they were “objects of almost universal consumption.”

Sowell ( 1995 , 2007 ).

Further examination of progressive thought can be found in Ely ( 2012 ), Leonard ( 2017 ), and Rodgers ( 1982 ).

Quoted from “Speech on the Oregon Bill,” delivered June 27, 1848.

Ross ( 1901 ).

Croly ( 1909 ).

Cooley ( 1909 ).

The New Republic ( 1915 ).

Seligman ( 1890 ).

The belief that society should adhere to a hierarchy composed of an elite, ruling few and an ignorant, obedient many did not originate in contemporary progressive thought. Plato’s Republic , written around 375 BCE, described a society of educated “guardians” presiding over the masses.

Goodnow ( 1916 ).

Fink ( 1997 ).

Fisher ( 1907 ).

Epstein ( 2004 ); see also Gostin ( 2016 ).

Langum ( 1994 ).

This seemingly odd pairing was a variation on the “Bootleggers and Baptists” concept of alcohol regulation during the same era. But it should not come as a surprise; progressivism’s communitarian emphasis resonated with many Protestant denominations. Progressive minister Washington Gladden wrote that individualism “is not a sound basis for democratic government” and that individuals who failed to embrace the “brotherhood of man” could not believe in God (Gladden 1905 ). Progressive Baptist theologian Walter Rauschenbusch argued Christian churches should teach believers that they are not individuals with rights, but members of a community. Any emphasis on individualism, he warned, “neutralizes the social consciousness created by Christianity” (Rauschenbusch 1907 ).

Alston et al. ( 2002 ), Blocker ( 2006 ), Derthick ( 2012 ), Keller ( 1994 ), and Kersch ( 2004 ).

Miron and Zwiebel ( 1991 ).

Morone ( 2003 ).

Lohmann and Weiss ( 2002 ).

Crain et al. ( 1977 ).

Carruthers ( 2016 ).

Leonard ( 2017 ).

Quoted from Conly ( 2012 ); see also Battaglio et al. ( 2019 ), LeGrand and New ( 2015 ), and Thaler and Sunstein ( 2008 ).

Jolls et al. ( 1998 ).

Allcott and Sunstein ( 2015 ) and Gruber and Köszegi ( 2001 ).

Wright and Ginsburg ( 2012 ).

Anderson ( 1997 ), Mitchell ( 2004 ), Veetil ( 2011 ), and Whitman and Rizzo ( 2007 ). Tobacco is an instructive case. Taxes on cigarettes and other tobacco products were initially low, only to rise over time. Increases were often enacted alongside minor anti-tobacco nudges, including public health campaigns and laws mandating product warning labels. That evolved into smoking bans, first in limited areas and later nearly everywhere. Many experts now call for total tobacco prohibition, just as experts did during the progressive era. The movement has truly come full circle.

There are too many examples to cite, but four merit a mention: Halberstam ( 1992 ) examines how experts led the United States into the Vietnam War, Hall ( 1982 ) and O’Toole ( 2007 ) explore urban planning failures, and Leonard ( 2017 ) documents how progressive experts, especially economists, led the American eugenics movement.

Ioannidis et al. ( 2017 ).

Chang and Li ( 2015 ) and Ioannidis ( 2005 ).

Jolls et al. ( 1998 ) acknowledge the possibility of bias affecting bureaucrats but nevertheless return to their central argument that bureaucrats pursue soft paternalism.

Berggren ( 2012 ); see also discussion in Wright and Ginsburg ( 2012 ) and Dudley and Xie ( 2019 ).

Bellé et al. ( 2018 ). Of the cognitive biases, the authors wrote, “architects of public organizations and services should account for them.” Yet no indication was given as to what biases the “architects” might have or how to overcome them. Perhaps that matter is best left to the architect of the architects. See also Cooper and Kovacic ( 2012 ), Moynihan and Lavertu ( 2011 ), and Roberts and Wernstedt ( 2019 ).

Hafner-Burton et al. ( 2013 ), Liu et al. ( 2017 ), Rachlinski and Farina ( 2002 ), and Tasic ( 2009 ).

Zamir and Sulitzeanu-Kenan ( 2018 ); see also McChesney ( 1997 ), Peltzman ( 1976 ), and Stigler ( 1971 ).

Glaeser ( 2006 ) and Klick and Mitchell ( 2006 ).

Viscusi and Gayer ( 2010 ).

Hayek ( 1952 ). One of Hayek’s arguments was that early twentieth-century economists introduced a progressive sensibility to their discipline. Instead of viewing society as being composed of free-thinking, unpredictable individuals, they embraced the idea that society was an interconnected organism that could be studied and altered through methods like those used in the natural sciences. Beyond that, social scientists may also have been envious of the speed at which natural sciences developed and improved quality of life. When central planning failed to accomplish the same advancements, many doubled down, furthering their embrace of scientism. See also Haack ( 2013 ).

Franco et al. ( 2014 ). Knowing that this bias exists, some researchers refrain from even attempting to publish their findings if they contradict or question majority thought, which is known as the “file drawer problem.”

Gigerenzer ( 2015 ) and Javdani and Chang ( 2019 ).

Gigerenzer ( 2018 ).

Rizzo and Whitman ( 2009 ).

Hayek ( 1945 ).

Mannix and Dudley ( 2015 ).

Dadayan ( 2019 ).

Hoffer et al. ( 2014 ) and Holcombe ( 1997 ).

Coase ( 1960 ); see also Dahlman ( 1979 ).

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Thom, M. (2021). Tax Your Sins, Experts Say. In: Taxing Sin. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-030-49176-5_1

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What Is a Sin Tax?

Understanding sin taxes, the bottom line.

• Personal Finance

Sin Tax Definition and How It Works

Julia Kagan is a financial/consumer journalist and former senior editor, personal finance, of Investopedia.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

A sin tax is an excise tax on specific goods and services due to their ability, or perception, to be harmful or costly to society. The tax comes at the time of purchase. Some items that often have a sin tax include tobacco products, alcohol, and gambling.

Sin taxes seek to deter people from engaging in socially harmful activities and behaviors. They also provide a source of revenue for governments.

Key Takeaways

• A "sin tax" is an excise tax placed on certain goods at the time of purchase.
• The items subject to this tax are perceived to be either morally suspect, harmful, or costly to society.
• Examples of sin taxes include those on cigarettes, alcohol, gambling, and vaping.
• Sin taxes can be implemented at the federal, state, and local levels, and the revenue is used to pay for many different government programs.
• Sin taxes are often effective at discouraging people from buying these goods, especially younger or lower-income consumers.

Sin taxes are typically added to liquor, cigarettes, and goods that are considered morally hazardous. Because they generate enormous  revenue , state governments favor sin taxes. Society accepts sin taxes because they affect only those who use sin taxed products or engage in sin taxed behaviors. When individual states run a deficit, a sin tax is generally one of the first taxes recommended by lawmakers to help fill the budget gap.

A sin tax is a type of Pigovian tax , which is levied on companies that create negative externalities with their business practices. Pigovian taxes seek to lower or end the use of harmful products by making them more expensive to buy.

Sin tax proponents maintain that the targeted behaviors and goods produce negative externalities. In other words, they foist an unfair burden on the rest of society. The effects of alcohol and tobacco products increase healthcare costs, driving up the cost of insurance for everyone. Also, compulsive gambling compromises the security and well-being of the home life, children, and families of the gambler. The sin taxes are designed to reduce those negative behaviors.

In many cases, these taxes are effective, especially with younger consumers who have less disposable income and are still developing their habits and preferences. For example, taxes on cigarettes can decrease rates and smoking and improve public health outcomes. A 10% tax on cigarettes lowers the demand for cigarettes by 4%. But the effect is even more pronounced for adolescents and teens: a 10% tax lowers smoking rates by nearly 12% for 12 to 17-year-olds.

Taxes on alcohol have been found to reduce general alcohol consumption, but the effect is even more pronounced among heavy drinkers. A seminal study on the impact of alcohol taxes found that a hypothetical 25-cent-per-drink tax would reduce alcohol consumption by 9.2%; however, it would reduce heavy drinking (including binge drinking and alcohol-impaired driving) by 11.4%.

Real-world applications have confirmed this prediction. When Maryland implemented its first increase in alcohol taxes in decades, the state's rate of car crashes involving drivers who had been drinking gradually decreased by 6%. Among drivers ages 15 to 34 years, the rate was double that—a 12% decrease.

History of Sin Taxes

Sin taxes in the United States have been in use since the 18th century. Tobacco was one of the first consumer goods ever taxed in America, first by the British before the Revolutionary War and later by the new government in the 1790s.

The federal government began taxing tobacco during the Civil War, and since then the level of this tax has varied depending on the income needs of the government. In 1951, the federal tax on cigarettes rose from $0.07 to $0.08 per pack of cigarettes to help finance the cost of the Korean War. In 1983, it was doubled to $0.16 per pack. In 1921, Iowa was the first state to implement a tobacco tax; North Carolina was the last in 1969. There are also tax rates that are applied to non-cigarette tobacco products such as snuff and chewing tobacco.

The first tax on alcohol in the United States was levied on distillers in 1792 to help pay for the costs of the Revolutionary War. The tax led to protests and riots. After the end of National Prohibition in the United States in 1933, most states enacted excise taxes on alcohol, including beer, wine, and spirits. These rates increased from 1933 to 1970. However, the value of alcohol taxes indexed for inflation has declined since the 1970s due to insufficient and infrequent increases.

Criticism of Sin Taxes

Imposing a sin tax does not come without criticism. Small-government conservatives argue that a sin tax represents an overreach of government. These critics allege that by singling out specific products or services for additional taxation, the government is engaging in social engineering and taking on the role of a nanny state.

Similarly, pundits on the left take issue with a sin tax because it tends to create a disproportionate effect on the poor and the uneducated. For example, there is empirical evidence that the rate of smoking is inversely related to education. Dropouts and high-school graduates have a higher probability, based on historical usage data, of using tobacco products than those people with advanced degrees.

Moreover, sin taxes are typically regressive taxes . This means that the less money a person makes, the more significant a percentage of their income these taxes consume. A pack-a-day smoker who makes $20,000 per year spends the same money on cigarettes, and therefore, the same on cigarette taxes, as one who makes $200,000 per year. However, the taxes the lower-income consumer must pay represent a more substantial portion of their paycheck.

Some studies of sin taxes, though, have shown that lower-income consumers are more likely to change their behavior in response to sin taxes, resulting in paying less as a result. The people who pay more due to sin taxes are often higher earners. The study of a hypothetical alcohol excise tax, for example, found that the people most impacted by the tax would be employed, college-educated, and earning $50,000 per year or more.

Examples of Sin Taxes

Sin taxes in the United States have been levied on consumer goods like alcohol and tobacco since before the U.S. was a country. There are also new sin taxes being enacted due to changing laws around recreational drug use and gambling,

In the United States, the federal government, all 50 states, Washington, D.C., and hundreds of counties, cities, and localities tax cigarettes as well as other tobacco products. In 2022, the federal cigarette tax was $1.01 per pack; state cigarette taxes ranged from $0.17 per pack in Missouri to $4.35 in Connecticut and New York.

As of 2022, the federal tax on alcohol is $0.58 per gallon. The District of Columbia and all fifty states except Utah also impose excise taxes on beer, ranging from $0.02 in Wyoming to $1.29 in Tennessee. The federal excise tax on wine is $1.07 per gallon, while state taxes range from $0.20 in Texas and California to $2.50 in Alaska. The federal excise tax on distilled spirits is $10.80 per gallon, while state taxes range from $1.50 in Maryland and the District of Columbia to $14.25 in Washington.

States that do not have excise taxes have state control systems in place for both retail and wholesale distribution. These states typically use price markups, which also increase the government revenue, but not sin taxes.

At the federal level, income from gambling must be reported on your tax return. You must either have tax withheld from your gambling winnings or pay estimated tax on your winnings, which will be reported on a tax form W-2G.

Tax treatment of gambling varies widely at the state level. New Hampshire, for example, has a 10% tax on all gambling winnings. Gambling income can come from a variety of sources, such as poker, slot machines, bingo, lotteries, and keno. Other states do not impose a tax on gambling winnings but may allow their cities and localities to do so. Washington State, for example, has no state gambling tax. But the city of Seattle has several different tax rates for gambling, depending on the type of game in which you won your money. These range from a 2% tax rate on winnings from amusement games to 10% from gambling at fundraising events.

Recreational Marijuana

Since California legalized medical marijuana in 1996, more states have followed suit with both medical and recreational forms of cannabis and cannabis-infused products. Many states that have legalized recreational marijuana tax growers, sellers, or consumers. In some states, all three are taxed.

As of 2022, sixteen states taxed recreational cannabis purchases at the retail level. These tax rates range from 6.35% of total sales in Connecticut to 37% of total sales in Washington state. These costs are generally passed onto consumers in the form of higher prices. However, only Arizona has a specific cannabis excise tax, which is 16%.

Illinois taxes recreational marijuana sales based on the level of THC (tetrahydrocannabinol) in the product. These rates range from 20% to 35% of total sales.

E-cigarettes were first sold in the U.S. in 2007, and their use has risen as smoking traditional cigarettes has fallen. Smoking e-cigarettes, or vaping, is especially popular among teens and younger smokers.

Thirty states, as well as the District of Columbia, Puerto Rico, and the U.S. Virgin Islands have a tax on e-cigarettes. These can be taxes on the wholesale cost, purchase price, or liquid volume of the e-cigarette. Taxes per volume range from $0.01 per vapor volume in Ohio to $0.40 per milliliter in Connecticut. Indiana has a 15% tax on gross retail income from e-cigarettes, while Puerto Rico levies a flat $3 tax on each e-cigarette purchased.

Sports Betting

In 2018, a Supreme Court on the Professional and Amateur Sports Protection Act allowed states to decide whether to allow betting on sports. However, sports betting is always subject to federal excise taxes, whether or not it is legal in your state. Unauthorized sports betting is subject to a higher sin tax rate.

Sports betting that is legal in your state is subject to a 0.25% federal excise tax on the amount you wager. Sports betting that is not authorized in your state is subject to a tax of 2% of the amount you wager.

State tax rates on sports betting can vary depending on how you place your bet (retail or mobile). Rates range from 6.75% in Nevada to 51% in New York and Rhode Island. Arkansas divides its tax rate based on how much you bet, taxing 13% of the first $150 million, then 20% above that.

How Much Money Do Sin Taxes Bring in?

How much revenue sin taxes generate can vary widely, depending on the tax rate and the population being taxed. Many states that implement sin taxes add millions of dollars to their revenue. In 2016, USA Today reported that states collected nearly $60 billion in revenue from sin taxes. However, as sin taxes discourage the behavior they impact, the revenue from them declines. As a result, while sin taxes can bring in significant government income, this income is often unreliable over time.

Which States Have an Alcohol Sin Tax?

In 2022, Utah was the only state that imposed no sin taxes on alcohol. The other 49 states had at least a beer tax. Other states that don't have a wine tax are Alabama, Idaho, Maine, Mississippi, Montana, New Hampshire, Oregon, Pennsylvania, Virginia, West Virginia, and Wyoming. In 2022, there also were no excise taxes on distilled spirits in Alabama, Idaho, Iowa, Maine, Michigan, Mississippi, Montana, New Hampshire, North Carolina, Ohio, Oregon, Pennsylvania, Vermont, Virginia, West Virginia, and Wyoming.

What Does the Government Spend Sin Taxes on?

Revenue from sin taxes is generally spread out across many government programs. Some money from sin taxes is spent on treatment programs for people struggling with the good being taxed. For example, revenue from taxes on cigarettes can be spent on public health initiatives to discourage smoking. Most money from sin taxes, though, is absorbed into the general budget and is spent on things like education, infrastructure, pension plans, fire, police, and other government programs.

How Well Does Increasing Sin Taxes Decrease the Activity Being Taxed?

Studies have consistently shown that over time, sin taxes reduce the behavior they are meant to discourage. This is especially true among younger consumers and those with less disposable income. Sin taxes are least effective at changing the behavior of older and wealthier consumers, whose budgets are less impacted by the increased tax rates on the goods they consume.

A "sin tax" is a tax levied on products or activities that are considered harmful or undesirable. These taxes are typically implemented to discourage consumption of the taxed products or to raise revenue for the government. Examples of products and activities that are often subject to sin taxes include tobacco, alcohol, gambling, and unhealthy foods.

Sin taxes are sometimes justified on the grounds that they can help reduce the negative social and health impacts of the taxed products or activities. Some critics argue that sin taxes disproportionately affect lower-income individuals. However, studies have not always shown this to be true.

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U.S. Department of Health and Human Services. " Six Steps to Improve Public Health: Using Tax Policies to Reduce Alcohol-Related Harm in Maryland ."

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National Library of Medicine. " The Rise and Fall of Alcohol Excise Taxes in U.S. States, 1933-2018 ."

Preventive Medicine. " Cigarette Smoking Behavior Is Strongly Related to Educational Status: the CARDIA Study ."

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Centers for Disease Control and Prevention. " STATE System Excise Tax Fact Sheet ."

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Centers for Disease Control and Prevention. " E-Cigarette Tax ."

Internal Revenue Service. " Sports Wagering ."

Tax Foundation. " Large Spread in Tax Treatment of Sports Betting Operators ."

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The pros and cons of sin taxes

Boris Johnson says he wants to halt the ‘continuing creep of the nanny state’ by abandoning levies on harmful products

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Tory leadership race front-runner Boris Johnson has pledged to conduct a full review of so-called “sin taxes” amid concerns that they “clobber those who can least afford it”.

‘Magic money tree’: do Hunt and Johnson’s policies add up? Boris Johnson’s voting record Boris Johnson faces questions of character

Sin taxes are loosely defined as sales taxes on goods that are deemed to have harmful effects on societies or individuals. These include products such as alcohol, tobacco and sugar, but also apply to activities such as gambling and pornography use.

Johnson’s promise to review these taxes if he becomes prime minister appears to directly undermine one of his most prominent supporters, Health Secretary Matt Hancock. He is due to publish a green paper in the coming days advocating extending the sugar tax to milkshakes.

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Johnson says that he will halt the roll-out of further levies until the conclusion of a “comprehensive review” into their effectiveness, Sky News reports.

The former foreign secretary suggested that to tackle health crises such as obesity, the Government should encourage people to do more exercise rather than tax goods they consume.

“Rather than just taxing people more, we should look at how effective the so-called sin taxes really are, and if they actually change behaviour,” Johnson said. “The recent proposal for a tax on milkshakes seems to me to clobber those who can least afford it.

“If we want people to lose weight and live healthier lifestyles, we should encourage people to walk, cycle and generally do more exercise,” he added.

Sin taxes have been a controversial topic in the UK for years. To some, levies on unhealthy goods help lessen the effects of health crises and raise public awareness of the benefits of living more healthily. To others, they are a paragon of the dreaded “nanny state” in which individual liberties are usurped by the will of the Government.

Here are the pros and cons of sin taxes:

They lessen the impact of health crises

The aim of sin taxes is mainly to alleviate major health crises in the UK - most notably obesity.

One of the most prominent sin taxes is the so-called “sugar tax”, which came into into force in April 2018 in an attempt to drive down consumption of sugary food. England’s chief medical officer, Professor Dame Sally Davies, has been a staunch supporter of this approach and has proposed taxing all unhealthy foods to tackle childhood obesity by discouraging parents from buying them.

BT News reports that the sugar tax “has been celebrated by the Treasury for shrinking the amount of sugar in the national diet by 45 million kg” in the year since its introduction and “for raising millions in sports funding”.

But Johnson appears to have dismissed this progress, as demonstrated by his decision to announce a sin tax review on the same day that Cancer Research UK said obesity causes more cases of some cancers than cigarettes.

Royal Society for Public Health (RSPH) chief executive Shirley Cramer said the organisation was “seriously disappointed” by the announcement, saying “evidence shows that the sugar levy has worked”.

Cancer Research UK chief executive Michelle Mitchell also praised the successes of sin taxes, claiming they have “been highly effective in bringing down smoking rates to record lows, including within deprived communities”, she said.

The Obesity Health Alliance’s Caroline Cerny said voluntary programmes for the food industry to cut sugar “have not had the same success” as taxation.

They raise awareness

Rather than pricing people out of buying unhealthy food, the news coverage and word-of-mouth provoked by such a tax may cause people to consider their options more keenly.

Many pundits have noted that Johnson’s latest proposal to win over Conservative voters sits directly at odds with his introduction of a levy on sugary soft drinks at City Hall in 2016 when he was London mayor.

The Mirror reports that when announcing the tax, he stated that such a levy would bring these health issues more sharply into focus, declaring: “I hope this initiative will allow us to raise awareness of the problem and encourage people to think about their diets.”

They create revenue

It goes without saying that taxes raise money for the Treasury, but for an example of how effectively they gather revenue, we need look no further than the sugar tax.

A government report in November 2018 showed that in the seven months since its introduction in April of the same year, soft drinks manufacturers and traders had paid an extra £153.8 million in tax.

The report adds that this funding has been allocated to a number of programmes to support the health and well-being of young people. This includes doubling funding for the primary physical education and Sport Premium to £320 million a year from 2017 and providing £100 million in 2018/19 for the Healthy Pupils Capital Fund.

They prompt private companies to be more responsible

To some, sin taxes should not be used to price consumers out of unhealthy food, but should instead prompt food producers to change their recipes to fall under the threshold for higher taxation, thus making their products healthier.

Robert Jenrick MP, a Treasury minister and Johnson ally, was quoted in the government report last November as hailing the “positive impact the soft drinks levy is having” by “encouraging manufacturers to cut sugar in over half the drinks found in UK stores”.

They are emblematic of the nanny state

When Johnson’s proposal to review sin taxes was announced, he justified the move by claiming it was “time to take a proper look at the continuing creep of the nanny state and the impact it has on hardworking families across Britain”, the Telegraph reports.

The BBC says that shortly after the announcement, Matt Hancock parroted Johnson’s approach by backing down on his pledge to increase the levy on sugar and admitting there were “more ways” to tackle obesity outside taxation that can work “without the need of the nanny state”.

A nanny state is defined by the Cambridge Dictionary as a government that “tries to give too much advice or make too many laws about how people should live their lives, especially about eating, smoking, or drinking alcohol”. Users of the term often complain that government will is usurping the freedom of individuals to make their own choices about their lifestyles.

Norman Smith, the BBC’s assistant political editor, writes that “talk of ‘standing up to the nanny state’ probably goes down well with the Tory members”, but not everyone is convinced that this is doable.

Asa Bennett, writing in The Daily Telegraph , suggests that in order to implement a full-scale review and backtrack on sin taxes, Johnson will “need a Chancellor who shares his determination to cut back on the nanny state” - a scenario that will need him to sideline Hancock, whom the paper suggests was in the running to be his chancellor.

They are regressive

Sin taxes are “regressive in nature”, according to the Corporate Finance Institute , and thus “discriminate against the poorer classes by placing the bigger financial burden on them relative to the burden placed on wealthier people”.

The Institute of Economic Affairs agrees, stating that there should be “no debate about whether taxes on food, alcohol, tobacco and soft drinks are regressive”, and argues that they “can cost poor families up to ten times more than they cost the wealthy”.

The institute also notes that advocates for sin taxes often “claim that they produce health benefits that are progressive, i.e. they disproportionately benefit the poor”, but points to the vast increases on tax on tobacco and alcohol, which are still used disproportionately by poorer communities despite the high rate of taxation.

They may not actually work in the long term

According to Prospect magazine, the public health case for a sugar tax “hinges on a chain of assumptions”, including the belief that taxing high-sugar drinks will “stunt sales, which in turn will lead to lower calorie consumption, and, finally, to lower levels of obesity (and better oral health)”.

“Yet these assumptions break down very quickly if consumers behave even slightly differently to the way government intends,” it adds.

It points to the so-called “fat tax” implemented by the Danish government in 2011, when foods with a saturated fat content above 2.3% were taxed. The policy was eventually abandoned after just 15 months, when its “unintended consequences became too blatant to ignore”. Many Danes “absorbed the costs by making savings elsewhere in their budgets or buying cheaper versions of the same fatty products”.

FoodDrinkTax.eu , a campaign group attempting to discourage the use of sin taxes around Europe, agrees. It claims that the Danish episode demonstrates that the “demand for sugary drinks, snacks and fatty foods is inelastic”, and that “evidence demonstrates that most people will not change their food shopping habits unless prices change dramatically”.

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Regressive Sin Taxes

A common objection to “sin taxes”—corrective taxes on goods like cigarettes, alcohol, and sugary drinks, which are believed to be over-consumed—is that they fall disproportionately on low-income consumers. This paper studies the interaction between corrective and redistributive motives in a general optimal taxation framework. On the one hand, redistributive concerns amplify the corrective benefits of a sin tax when sin good consumption is concentrated on the poor, even when bias and demand elasticities are constant across incomes. On the other hand, a sin tax can generate regressivity costs, raising more revenue from the poor than from the rich. Sin tax regressivity can be offset by targeted transfers or income tax reforms if differences in sin good consumption are driven by income effects, but not if they are driven by preference heterogeneity, and not if the indirect incentives the sin tax generates for labor supply decisions are not salient. The price elasticity of demand determines the extent to which corrective benefits versus regressivity costs determine the size of the optimal tax. We implement our optimal tax formulas in a calibrated model of sugar-sweetened beverage consumption for a range of parameter values suggested by empirical work.

We thank Hunt Allcott, Alan Auerbach, Raj Chetty, Stefano DellaVigna, Emmanuel Farhi, Xavier Gabaix, Nathaniel Hendren, Louis Kaplow, David Laibson, Erzo F.P. Luttmer, Matthew Rabin, Alex Rees-Jones, Emmanuel Saez, Jim Sallee, Florian Scheuer, Stefanie Stantcheva, Matthew Weinzierl, and participants at seminars and conferences for helpful comments and discussions. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

MARC RIS BibTeΧ

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Source: Emmanuel Saez and Gabriel Zucman • Note: Tax rates shown include levies paid at all levels of government. Government transfers such as Social Security benefits have not been subtracted.

In the 1960s, the 400 richest Americans paid more than half of their income in taxes. Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid and food stamps.

Today, the superrich control a greater share of America’s wealth than during the Gilded Age of Carnegies and Rockefellers. That's partly because taxes on the wealthy have cratered. In 2018, America's top billionaires paid just 23 percent of their income in taxes.

For the first time in the history of the United States, billionaires had a lower effective tax rate than working-class Americans.

Guest Essay

It’s Time to Tax the Billionaires

By Gabriel Zucman

Gabriel Zucman is an economist at the Paris School of Economics and the University of California, Berkeley.

Until recently, it was hard to know just how good the superrich are at avoiding taxes. Public statistics are oddly quiet about their contributions to government coffers, a topic of legitimate interest in democratic societies.

Over the past few years, I and other scholars have published studies and books attempting to fix that problem. While we still have data for only a handful of countries, we’ve found that the ultrawealthy consistently avoid paying their fair share in taxes. In the Netherlands, for instance, the average taxpayer in 2016 gave 45 percent of earnings to the government, while billionaires paid just 17 percent.

Billionaires avoid taxes outside

the United States, too

United States

Netherlands

Lower earners

0-50th percentile

Middle earners

51-90th percentile

High earners

90-99.99th percentile

Billionaires

Billionaires avoid taxes outside the United States, too

50% total tax rate

Sources: Demetrio Guzzardi, et al., Journal of the European Economic Association; Emmanuel Saez and Gabriel Zucman; Institut des Politiques Publiques; Netherlands Bureau for Economic Policy Analysis

Note: Data is from 2015 for Italy; 2016 for the Netherlands and France; 2018 for the United States.

Why do the world’s most fortunate people pay among the least in taxes, relative to the amount of money they make?

The simple answer is that while most of us live off our salaries, tycoons like Jeff Bezos live off their wealth. In 2019, when Mr. Bezos was still Amazon’s chief executive, he took home an annual salary of just $81,840 . But he owns roughly 10 percent of the company , which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which are subject to income tax, Mr. Bezos would face a hefty tax bill. But Amazon does not pay dividends to its shareholders. Neither does Berkshire Hathaway or Tesla. Instead, the companies keep their profits and reinvest them, making their shareholders even wealthier.

Unless Mr. Bezos, Warren Buffett or Elon Musk sell their stock, their taxable income is relatively minuscule. But they can still make eye-popping purchases by borrowing against their assets. Mr. Musk, for example, used his shares in Tesla as collateral to rustle up around $13 billion in tax-free loans to put toward his acquisition of Twitter.

Jeff Bezos arriving for a news conference after flying into space in the Blue Origin New Shepard rocket on July 20, 2021.

Getty Images

Outside the United States, avoiding taxation can be even easier.

Take Bernard Arnault, the wealthiest person in the world. Mr. Arnault’s shares in LVMH, the luxury goods conglomerate, officially belong to holding companies that he controls. In 2023, Mr. Arnault’s holdings received about $3 billion in dividends from LVMH. France — like other European countries — barely taxes these dividends, because on paper they are received by companies. Yet Mr. Arnault can spend the money almost as if it were deposited directly into his bank account, so long as he works through other incorporated entities — on philanthropy , for instance, or to keep his megayacht afloat or to buy more companies .

Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades. In 2018, the United States cut its maximum corporate tax rate to 21 percent from 35 percent. And the estate tax has almost disappeared in America. Relative to the wealth of U.S. households, it generates only a quarter of the tax revenues it raised in the 1970s.

The falling U.S. corporate tax rate

Reagan tax cuts

Trump tax cuts

Source: Internal Revenue Service

Note: Tax rates are for each year’s highest corporate income bracket.

So what should be done?

One obstacle to taxing the very rich is the risk they may move to low-tax countries. In Europe, some billionaires who built their fortune in France, Sweden or Germany have established residency in Switzerland , where they pay a fraction of what they would owe in their home country. Although few of the ultrawealthy actually move their homes , the possibility that they might has been a boogeyman for would-be tax reformers.

There is a way to make tax dodging less attractive: a global minimum tax. In 2021, more than 130 countries agreed to apply a minimum tax rate of 15 percent on the profits of large multinational companies. So no matter where a company parks its profits, it still has to pay at least a baseline amount of tax under the agreement.

In February, I was invited to a meeting of Group of 20 finance ministers to present a proposal for another coordinated minimum tax — this one not on corporations, but on billionaires. The idea is simple. Let’s agree that billionaires should pay income taxes equivalent to a small portion — say, 2 percent — of their wealth each year. Someone like Bernard Arnault, who is worth about $210 billion, would have to pay an additional tax equal to roughly $4.2 billion if he pays no income tax. In total, the proposal would allow countries to collect an estimated $250 billion in additional tax revenue per year, which is even more than what the global minimum tax on corporations is expected to add.

Bernard Arnault watching the men’s singles final at the French Open on June 8, 2014.

Abaca Press

Critics might say that this is a wealth tax, the constitutionality of which is debated in the United States. In reality, the proposal stays firmly in the realm of income taxation. Billionaires who already pay the baseline amount of income tax would have no extra tax to pay. The goal is that only those who dial down their income to dodge the income tax would be affected.

Critics also claim that a minimum tax would be too hard to apply because wealth is difficult to value. This fear is overblown. According to my research, about 60 percent of U.S. billionaires’ wealth is in stocks of publicly traded companies. The rest is mostly ownership stakes in private businesses, which can be assigned a monetary value by looking at how the market values similar firms.

One challenge to making a minimum tax work is ensuring broad participation. In the multinational minimum tax agreement, participating countries are allowed to overtax companies from nations that haven’t signed on. This incentivizes every country to join the agreement. The same mechanism should be used for billionaires. For example, if Switzerland refuses to tax the superrich who live there, other countries could tax them on its behalf.

We are already seeing some movement on the issue. Countries such as Brazil, which is chairing the Group of 20 summit this year and has shown extraordinary leadership on the issue, and France , Germany, South Africa and Spain have recently expressed support for a minimum tax on billionaires. In the United States, President Biden has proposed a billionaire tax that shares the same objectives.

To be clear, this proposal wouldn’t increase taxes for doctors, lawyers, small-business owners or the rest of the world’s upper middle class. I’m talking about asking a very small number of stratospherically wealthy individuals — about 3,000 people — to give a relatively tiny bit of their profits back to the governments that fund their employees’ educations and health care and allow their businesses to operate and thrive.

The idea that billionaires should pay a minimum amount of income tax is not a radical idea. What is radical is continuing to allow the wealthiest people in the world to pay a smaller percentage in income tax than nearly everybody else. In liberal democracies, a wave of political sentiment is building, focused on rooting out the inequality that corrodes societies. A coordinated minimum tax on the superrich will not fix capitalism. But it is a necessary first step.

More on tax evasion and inequality

This Is Tax Evasion, Plain and Simple

By Gabriel Zucman and Gus Wezerek

The Tax Pirates Are Us

By Binyamin Appelbaum

How to Tax Our Way Back to Justice

By Emmanuel Saez and Gabriel Zucman

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Gabriel Zucman is an economist at the Paris School of Economics and the University of California, Berkeley, and a co-author of “The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay.”

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