Estimating the price elasticity of demand for cigarettes in South Africa using the Deaton approach

ObjectiveTo estimate the price elasticity of demand for South Africa and thereby contribute to growing the evidence base of the likely impact of excise taxes on cigarette demand in low-income and middle-income countries.MethodsWe employ the Deaton method, using wave 5 data from the South African National Income Dynamics Study, to estimate the cigarette price elasticity for South Africa. We used a sample of 6820 households.ResultsOf the 6 820 households in the sample for which we had sufficient data, 1341 (19.7%) spent money on tobacco. The price elasticity of demand for cigarettes is estimated at −0.86 (95% CI −1.37 to −0.35), implying that the demand for cigarettes in South Africa declines by 8.6% for every 10% increase in price.ConclusionThe negative price elasticity estimate for South Africa indicates that increases in the excise tax are particularly effective in controlling cigarette consumption. However, given the presence of a significant illicit tobacco market in the country, it is important that authorities augment tax measures with strategies that curb the illicit trade in cigarettes.

Download Full-text

Price elasticity of demand for cigarettes in Bosnia and Herzegovina: microdata analysis

Tobacco Control ◽

10.1136/tobaccocontrol-2019-055258 ◽

2020 ◽

Vol 29 (Suppl 5) ◽

pp. s304-s309

Author(s):

Dragan Gligorić ◽

Anđela Pepić ◽

Saša Petković ◽

Jovo Ateljević ◽

Borislav Vukojević

Keyword(s):

Bosnia And Herzegovina ◽

Price Elasticity ◽

Demand Model ◽

Middle Income ◽

Excise Tax ◽

Middle Income Countries ◽

Elasticity Of Demand ◽

Price Elasticity Of Demand ◽

Main Driver ◽

Cigarette Prices

BackgroundBosnia and Herzegovina (B&H) is among the top 10 countries in the world in terms of number of smokers. The cigarette prices in B&H are under a direct impact of state excise tax policy. The specific excise on cigarettes was introduced in B&H in 2009. Since then it has been increasing every year thus being the main driver of cigarette prices growth.MethodsIn this paper we estimate price elasticity of demand for cigarettes following Deaton demand model and apply it on microdata obtained from the Household Budget Surveys in B&H conducted in 2011 and 2015. Deaton model uses within-cluster information to estimate total expenditure elasticities and then uses between-cluster information to estimate price elasticities. For B&H, the cluster is defined as a municipality × in the year t. Our sample contains 14 252 households, divided into 267 clusters.ResultsOur results show that the price elasticity is statistically significant and amounts to −1.366. This means that if cigarette prices in B&H are increased by 10%, the demand for cigarettes would decrease by 13.66%.ConclusionsWe found a negative price elasticity of demand for cigarettes of −1.366. These results of the econometric estimate of elasticity of demand are more elastic compared with the results of similar surveys carried out on the sample of low and middle-income countries. It demonstrates that the demand for cigarettes responds strongly to the price increase.

Download Full-text

Illicit/cheap cigarettes in South Africa

Trends in Organized Crime ◽

10.1007/s12117-019-09372-9 ◽

2019 ◽

Vol 23 (3) ◽

pp. 242-262 ◽

Cited By ~ 2

Author(s):

Kirsten van der Zee ◽

Corné van Walbeek ◽

Sibahle Magadla

Keyword(s):

South Africa ◽

South African ◽

National Income ◽

Production Costs ◽

Income Dynamics ◽

African Government ◽

Excise Tax ◽

Illicit Trade ◽

Taxation Policy ◽

Tobacco Taxation

AbstractUsing wave 5 of the National Income Dynamics Study (conducted in 2017), this paper investigates the market for very low-priced cigarettes in South Africa, which, in all probability, are illicit. Since the sum of the excise tax and VAT in 2017 amounted to R16.30 (1.22 USD) per pack, any cigarettes selling for R20 (1.50 USD) per pack or less are likely to be illicit, assuming reasonable production costs. By this definition, approximately 30% of cigarettes consumed in South Africa in 2017 were illicit. Illicit cigarettes are found across all nine provinces. At the margin, the purchase of illicit cigarettes is associated with lower socio-economic characteristics, such as having lower levels of income and education. As illicit cigarettes undermine both the fiscal and health agendas of tobacco taxation policy, these results highlight the need for the South African government to implement urgently effective measures in order to curb illicit trade.

Download Full-text

Simulating the impact of excise taxation for disease prevention in low-income and middle-income countries: an application to South Africa

BMJ Global Health ◽

10.1136/bmjgh-2017-000568 ◽

2018 ◽

Vol 3 (1) ◽

pp. e000568 ◽

Cited By ~ 6

Author(s):

Nicholas Stacey ◽

Amit Summan ◽

Aviva Tugendhaft ◽

Ramanan Laxminarayan ◽

Karen Hofman

Keyword(s):

South Africa ◽

Population Health ◽

Low Income ◽

Uncertainty Interval ◽

Middle Income ◽

Excise Tax ◽

Middle Income Countries ◽

Excise Taxes ◽

Life Years ◽

The Impact

IntroductionExcise taxes are policy tools that have been applied internationally with some success to reduce consumption of products adversely impacting population health including tobacco, alcohol and increasingly junk foods and sugary beverages. As in other low-income and middle-income countries, South Africa faces a growing burden of lifestyle diseases; accordingly we simulate the impact of multiple excise tax interventions in this setting.MethodsWe construct a mathematical model to simulate the health and revenue effects of increased excise taxes, which is adaptable to a variety of settings given its limited data requirements. Applying the model to South Africa, we simulate the impact of increased tax rates on tobacco and beer and of the introduction of a tax on sugar-sweetened beverages (SSB). Drawing on surveys of product usage and risk factor prevalence, the model uses a potential impact fraction to simulate the health effects of tax interventions.ResultsAdopting an excise rate of 60% on tobacco would result in a gain of 858 923 life-years (95% uncertainty interval (UI) 480 188 to 1 310 329), while adopting an excise rate of 25% on beer would result in a gain of 568 063 life-years (95% UI 412 110 to 775 560) and the adoption of a 20% tax on SSBs would result in a gain of 688 719 life-years (95% UI 321 788 to 1 079 653).ConclusionMore aggressive excise tax policies on tobacco, beer and SSBs in South Africa could result in meaningful improvements in population health and raised revenue.

Download Full-text

Impact of Taxation Policy on Household Spirit Consumption and Public-Finance Sustainability

Sustainability ◽

10.3390/su11205858 ◽

2019 ◽

Vol 11 (20) ◽

pp. 5858 ◽

Cited By ~ 2

Author(s):

Tanja Laković ◽

Ana Mugoša ◽

Mirjana Čizmović ◽

Gordana Radojević

Keyword(s):

Sustainable Development ◽

Price Elasticity ◽

Low Income ◽

Control Variable ◽

Middle Income ◽

Excise Tax ◽

Taxation Policy ◽

Road Map ◽

Working Age ◽

Complementary Goods

The objective of this study was to estimate the sensitivity of spirit quantity demanded for price and income changes in Montenegro and to show the effectiveness of taxation-policy changes in the reduction of spirit consumption. It is the first study on this topic in Montenegro, where adverse effects of alcohol are recognized as an important obstacle in achieving Sustainable Development Goals (SDGs). The price elasticity of spirits was estimated using Deaton’s methodology on the Household Budget Survey (HBS) data in the period of 2006–2017. Cigarettes were included as a control variable as, along with spirits, they are one of the most harmful substances used in Montenegro. Using these results, we simulated the effects of spirit use on public revenue. The results show that the spirits’ own price elasticity equaled −0.45, while the cross-price elasticity equaled −0.17, showing that spirits and cigarettes are complementary goods. These results, along with elasticities calculated by sex (male, −0.55; female, −0.5), income groups (low income, −1.16; middle-income, −0.46; high-income, −0.26), and for the working-age group (−0.74), demonstrate that an increase in excise taxes could be a very efficient tool in decreasing the adverse effect of spirits and cigarettes on household member’s productivity, health, and budget, which is in line with SDGs. An efficient road map for sustainable development for Montenegro must include the reduction of health-harmful substance use through excise tax increase.

Download Full-text

Price elasticity of demand for manufactured cigarettes and roll-your-own cigarettes across socioeconomic status groups in Thailand

Tobacco Control ◽

10.1136/tobaccocontrol-2019-055480 ◽

2020 ◽

pp. tobaccocontrol-2019-055480

Author(s):

Jintana Jankhotkaew ◽

Siriwan Pitayarangsarit ◽

Surasak Chaiyasong ◽

Kamolphat Markchang

Keyword(s):

Socioeconomic Status ◽

Price Elasticity ◽

Low Income ◽

Price Change ◽

Tobacco Consumption ◽

High Price ◽

Elasticity Of Demand ◽

Price Elasticity Of Demand ◽

Pricing Policies ◽

Different Types

BackgroundPricing policies have been proven to be effective in reducing tobacco consumption. However, studies investigating the effectiveness of pricing policies across different types of tobacco products and socioeconomic status (SES) groups are limited, particularly in low-income and middle-income countries.ObjectiveThis study aimed to quantify the price elasticity of demand for different types of cigarettes across different SES groups.MethodsThis study used data from a nationally representative survey in Thailand conducted in 2017 and included current smokers aged at least 15 years. To quantify the price elasticity of demand for cigarette consumption, a two-part model was employed for five different types of cigarettes: domestic and imported manufactured cigarettes with a low and high price, and roll-your-own cigarettes. Personal income was used to determine SES.ResultsPrice elasticity of demand for cigarettes exists for all types of cigarettes. The price elasticity of demand for manufactured and roll-your-own cigarettes was −0.49 (p<0.05) and −0.32 (p<0.05), respectively. People who smoked domestic manufactured cigarettes were more responsive to price change than those who smoked imported manufactured cigarettes. Low-income smokers of manufactured and roll-your-own cigarettes were more responsive to price change than those with high income.ConclusionSmokers with a low income were more responsive to price change than those with higher income. The effectiveness of pricing policy in reducing demand for manufactured cigarettes was greater in domestic cigarettes than imported ones.

Download Full-text

Does cigarette demand respond to price increases in Uganda? Price elasticity estimates using the Uganda National Panel Survey and Deaton’s method

BMJ Open ◽

10.1136/bmjopen-2018-026150 ◽

2019 ◽

Vol 9 (3) ◽

pp. e026150 ◽

Cited By ~ 6

Author(s):

Grieve Chelwa ◽

Corne van Walbeek

Keyword(s):

Price Elasticity ◽

Evidence Base ◽

Cigarette Consumption ◽

Sub Saharan Africa ◽

Panel Survey ◽

Elasticity Of Demand ◽

Excise Taxes ◽

Price Elasticity Of Demand ◽

Tax Revenues ◽

Cigarette Demand

ObjectiveTo provide the first published estimates of the price elasticity of demand for cigarettes in Uganda and thereby contribute to growing the evidence base of the likely impact of excise taxes on cigarette consumption and tax revenues in Sub-Saharan Africa.MethodWe use a linear approximation of the Almost Ideal Demand System along with expenditure data from the Uganda National Panel Survey and exploit the fact that prices of cigarettes vary across geographical space in Uganda.ResultsWe find that cigarettes are price inelastic in Uganda with elasticity estimates ranging between −0.26 and −0.33. That is, we expect that cigarette demand will decline by between 2.6% and 3.3% every time cigarette prices rise by 10%. These elasticity estimates are in line with international evidence and are robust to outliers in the data.ConclusionOur estimates of the price elasticity of demand for cigarettes suggest that the authorities in Uganda can reduce cigarette consumption and simultaneously increase tax revenues by increasing the excise taxes on cigarettes.

Download Full-text