Objective: To analyze trends in excise taxes, real price and the affordability of cigarettes in Europe, and to examine the impact of EU wide tax policies on new member states.
Design: We use a sample of 37 European countries with data from 2004 to 2010. 27 countries are EU member states of which 12 joined in 2004 or 2007 (new members), while 10 non-EU countries are included as a comparison. Data is sourced from the European Commission and the Economist Intelligence Unit.
Results: The excise tax burden increased in all new member states between 2004 and 2010 while remaining relatively unchanged in existing member states. In 2010, the excise tax burden was higher in new (mean 63.8%) than in existing member states (mean 59.4%). Although cigarettes were significant cheaper in new member states the difference in affordability was narrower between the two groups. Excise taxes and prices rose aggressively in new member states while the increases in existing member states were smaller. While cigarettes became less affordable in most EU member states there was little difference between new and existing member states. The average annual percentage change in per-capita cigarette consumption was negative in all existing member states and in 9 of 12 new member states between 2004 and 2010, indicating declining per-capita cigarette consumption.
Conclusions: Joining the EU results in significant increases in excise taxes and prices, and declines in affordability. Additionally, the structure of taxes, specifically the high excise tax floor resulted in higher taxes and prices.
Keywords: Economics; Price; Taxation.