Taxing tobacco in order to reduce consumption might seem like a no-brainer at first glance--and the higher the better, some might say -- but it is problematic for a number of reasons.
For one thing, the case of Quebec provides a cautionary tale, as the prevalence of tobacco use has hovered around 24 per cent since 2003 despite a doubling of the price of cigarettes. And to the extent that tobacco taxes do reduce consumption, they can end up reducing total tax receipts, thus working against the competing and contradictory government objective of raising revenue. Of course, government revenue can take a hit without having any effect on consumption whatsoever, thanks to the black market provision of contraband, which tends to expand and contract in step with rising and falling tobacco tax levels. Moreover, taxing tobacco is highly regressive, hitting the poor four times harder than it hits the wealthy.
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