Nicotax: the fiscal and behavioural dynamics of cigarette taxation in Jordan

This paper investigates the impact of cigarette taxation on consumption and fiscal outcomes in Jordan, where smoking prevalence is high and reliance on tobacco revenues is substantial. Using quarterly data from 2008–2023 and General-to-Specific Ordinary Least Squares (GTS-OLS) and Vector Autoregression (VAR) models, the analysis captures short-run and dynamic effects. Results show higher excises significantly reduce consumption, with an immediate effect of –1.42 percentage points in cigarette consumption growth per 1 Jordanian Dinars (JD) increase, a portion of this decline is offset in subsequent quarters, reflecting behavioural inertia, stockpiling, or substitution into illicit products. The sustained impact of taxation accounts for 8–9% of consumption variance over a 4 to 10 quarters horizon. Revenues remain closely tied to consumption, with a 1 percentage-point rise in consumption growth linked to a 0.82 percentage-point increase in revenue growth, illustrating the fiscal–health policy dilemma. Overall, taxation is effective but requires sustained, inflation-adjusted reforms, stronger enforcement, and complementary measures to align public health with fiscal stability.