Do Sin Taxes Work in India? A Comparative Analysis of Tobacco and Alcohol Consumption

Abstract Governments use "sin taxes" on things like tobacco and alcohol to help fix the health problems and social costs they cause. In India, we've seen these taxes go up quite a bit, especially after the GST was introduced in 2017. This paper looks into whether these higher prices actually made people across different states stop using these products. We used data from the National Family Health Surveys (NFHS-4 and 5) and the Global Adult Tobacco Survey to test this. Using OLS regression and price elasticity models, we checked how much the post-GST changes really mattered. The data shows that tobacco use dropped from 48.2% in 2010 to 32.6% in 2021, and alcohol use fell from 32.1% to 17.5%. However, the numbers show that both products have "inelastic demand".The Price Elasticity of Demand for tobaccowas $-0.313 and alcohol was $-0.682. Basically, this means people don't change their habits very much just because the price goes up. Because of this, the study finds that while taxes are a good start, they aren't enough on their own. To really see a long-term change, India needs to combine these taxes with better regulations and programs that actually change how people behave. Keywords: taxes Pigouvian taxation tobacco alcohol India GST price elasticityNFHS