PH tobacco taxation a classic cases of Laffer Curve,
Economist Arthur Laffer argues that the Philippines' aggressive tobacco tax increases have reached a point of diminishing returns. He suggests that high taxes are fueling the illicit cigarette trade and causing a decline in total government revenue.
Why it matters
This highlights the economic debate over tax policy effectiveness and the unintended consequences of high excise taxes on regulated goods.
Dr. Arthur Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm MANILA, Philippines - The Philippines illustrates the Laffer Curve in action, as annual increases in excise tax rates have led to declining government revenues and a rise in illicit tobacco trade, according to a renowned American economist.
"The data strongly suggest that the Philippines has gone too far in increasing tobacco tax rates. If you overtax a product, you lose control of the market, you lose revenues, you have more people buying illicit cigarettes," said Dr. Arthur Laffer, founder and chairman of Laffer Associates, an economic research and consulting firm.
Dr. Laffer is a former member of President Ronald Reagan's Economic Policy Advisory Board and the author of the Laffer Curve theory, which describes the tradeoff between tax rates and the total tax revenues collected by the government.
Get smarter about the news
Sign up free for a feed built around what you actually care about, Dive Deeper research on any story, and the full text of every article.
Create free accountAlready have an account? Sign in