An economic assessment of the drivers of the illicit trade in cigarettes

The illicit provision of cigarettes imposes costs on society. It adversely impacts public health and undermines health policy. It also has fiscal costs, hindering the provision of vital public services.

The drivers of the illicit market are many. On the demand side, the affordability of duty paid cigarettes versus illicit plays a role, as does the cultural acceptance of illicit cigarette consumption. The range of causes on the supply side are probably even broader, including the profitability of supply, geography (proximity to countries with lower excise rates, number of ports and other entry points), whether tobacco is grown locally, existence of criminal networks, technology, etc. The general capacity of tax administration and enforcement authorities also plays a role.

This report investigates the relationship between cigarette taxes and the illicit trade in cigarettes. It does so using academic evidence and case studies from eight countries. The case study countries have been selected to provide a broad range of distinctive, differentiated markets which demonstrate different aspects of the key drivers of the trade in illicit cigarettes.