Impact of Tobacco Taxation on Rural-Urban Cigarette Consumption in Indonesia

Abstract

Tobacco taxes in Indonesia have always been increasing over the past period. However, little was known about the impact of increasing tobacco taxes on cigarette consumption in urban and rural communities. Therefore, we examine the impact of implementing tobacco taxation policies in Indonesia on cigarette consumption levels in urban and rural areas. This study uses panel data for the 2007–2022 period from 33 provinces in Indonesia. Data were sourced from the Central Bureau of Statistics of the Republic of Indonesia and the Ministry of Finance of the Republic of Indonesia and were analyzed using the two-stage least squares (2SLS) model and the propensity score matching (PSM) model. Our finding shows that increased tobacco taxes negatively impact cigarette consumption in urban and rural areas. Even so, the decline in cigarette consumption in urban areas is still much lower than the reduction in rural areas.