Using Health Taxes to Support Revenue: An Action Agenda for the IMF and World Bank

The Covid-19 pandemic has led to large budget gaps in low- and middle-income countries, with revenues projected to be reduced for years to come. This is the moment for policymakers to consider whether health taxes—levied on tobacco products, alcoholic and sugar-sweetened beverages, and polluting fuels—can play a part in boosting revenue while also supporting better health. Our estimates suggest that health taxes, even excluding fuel taxes, could close at least half of their revenue shortfall in the near term. The International Monetary Fund and the World Bank could help in this effort given their extensive engagement on health taxes which we illustrate from their recent program engagement. Building on this track record and generalizing it to more countries with low health taxes could constitute a new IMF/WB agenda for action to more consistently promote taxes on tobacco, alcoholic and sugary beverages in their member countries.