Working Papers

Fiscal policy impact on tobacco consumption in high smoking prevalence transition economies – the case of Albania

Fiscal policy impact on tobacco consumption in high smoking prevalence transition economies – the case of Albania

Aida Gjika, Klodjan Rama, Edvin Zhllima, Drini Imami

Abstract: This paper analysis the determinant factors of tobacco consumption in of Albania, which is one of the countries with highest smoking prevalence in Europe. To empirically estimate the elasticity of cigarettes demand in Albania, this paper uses the Living Standard Measurement Survey (LSMS) applying the Deaton’s (1988) demand model. Our paper estimates an Almost Ideal Demand System (AIDS), which allows disentangling quality choice from exogenous price variations through the use of unit values from cigarette consumption. Following a three-stage procedure, the estimated results suggest that the price elasticity is around -0.57. The price elasticity appears to be within the range of estimated elasticities in developing countries and in line with the estimates elasticities from the model using aggregate data. In terms of the control variables, it seems that the total expenditure, household size, male to female ratio and adult ratio are important determinants of tobacco demand in Albania. Thus, since an increase in price, which have been mainly driven by the increases of taxes, have demonstrated to have had a significant impact on tobacco consumption, the government should further engage in gradual increase of taxation.

Keywords: tobacco consumption, LSMS, Deaton, elasticity

January 2019

Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model

Estimating tobacco price elasticity in Kosovo: using the micro data from Household Budget Survey (2007 – 2017) and Deaton demand model

Besnik Prekazi

Abstract: This analysis aims at estimating price elasticity of demand for cigarettes in Kosovo. Data from Kosovo Household Budget Survey for the years from 2007-2017 are used and the Deaton demand model is utilized to make the estimations. Deaton (1988) demand model uses unit values as a proxy for price, spatial variation, and the structure imposed by a weak separability assumption account for the effect of the quality of the good. Basic idea of the model is that all households within a cluster (typically a small territory unit, such as municipality or village) face the same market price and that within-cluster variations in purchases depend only on total household expenditure and household characteristics, while cross-cluster variations in purchase are due to genuine price variations, among other factors. The estimation of the model consists of three stages. Results of the estimation indicate a negative price elasticity of cigarettes which amounts to −0.288.Standard error of the elasticity calculated via bootstrapping procedure (1000 replications) indicates that the elasticity is significantly lower than zero (ξ= -0.288; SEξ = 0.097, t = -2.969).

Keywords: Tobacco consumption, Deaton demand model, Household, Expenditure, Demand elasticity, Kosovo

January 2019

Tobacco price elasticity in Montenegro: using the micro data from Household Budget Survey and Deaton demand model

Tobacco price elasticity in Montenegro: using the micro data from Household Budget Survey and Deaton demand model

Ana Mugoša , Mirjana Čizmović, Tanja Laković, Milenko Popović

Abstract: The main goal of this research is to estimate the price elasticity of cigarette demand in Montenegro, applying Micro analysis. The data related to cigarettes consumption was derived from the Household Budget Survey (HBS), covering the period from 2006-2017. The long-run and short-run elasticities of cigarette demand, in context of price and income were estimated using Deaton’s model. Results of the estimation indicate a negative price elasticity of cigarettes, while the value of total expenditure elasticity is positive (which was expected). The analysis of the tobacco market and regulatory shows that the increase in excise taxes will have direct positive effect – decrease in quantity of cigarettes demanded. The results are in line with the previously conducted research in low and middle-income countries.

Keywords: price and income elasticity of cigarette demand; HBS; excise taxes; Montenegro

January 2019

Tobacco price elasticity in Bosnia: micro data analysis

Estimation of tobacco price elasticity in Serbia using aggregate time-series data

Dragan Gligorić, Anđela Pepić, Saša Petković, Jovo Ateljević, Borislav Vukojević

Abstract: Smoking is an endemic problem in Bosnia & Herzegovina (BiH), and BiH is among the top 10 countries in the world for cigarettes consumption (World Atlas, 2018). The state excise policy is one of the main available tool for reducing smoking prevalence because the cigarette prices are under direct impact of this policy. The specific excise on cigarettes introduced in BiH in 2009 and have increased every year so it was the main driver of cigarettes price growth. In order to determine effect of increase in cigarette prices, and thus effect of excise policy on demand for cigarettes in BIH, in this paper we estimate price elasticity of demand for cigarettes. We follow Deaton (1988) demand model and apply it on micro data, obtained from the Household Budget Surveys in BiH in 2011 and 2015. Our results show that the price elasticity coefficient is statistically significant and amounts to -0.65. This means that if cigarette prices in BIH increase by 10%, the demand for cigarettes, among smokers of cigarettes, will decrease by 6.5% i.e. continuous increasing in specific excise in BiH can be efficient measure for reducing smoking prevalence in BiH.

Keywords: smoking prevalence, price elasticity of demand for cigarettes, specific excise on cigarettes, cigarettes prices

January 2019

Tobacco price elasticity in Serbia: using the micro data from Household Budget Survey and Deaton demand model

Tobacco price elasticity in Serbia: using the micro data from Household Budget Survey and Deaton demand model

Marko Vladisavljević, Jovan Zubović, Olivera Jovanović, Duško Bodroža, Isidora Ljumović, Ivana Domazet, Mihajlo Đukić

Abstract: In this paper we use Deaton’s (1988, 1977) demand model and Household Budget Survey (HBS) data for the years 2012 – 2016 to estimate the price elasticity for Serbia. Previous research has suggested that the price elasticity of tobacco products is typically negative and inelastic. The price elasticity of cigarettes is estimated at -0.45 and its statistical significance is confirmed via bootstrapping procedure, therefore confirming the previous findings. Estimated negative and inelastic cigarettes price elasticity for Serbia demonstrates that tobacco tax policy can be used effectively to reduce cigarette consumption and their harmful effects, while preserving or increasing the level of government revenue collected through taxes.

Keywords: Tobacco, Price elasticity, Consumption, Taxation, Serbia

January 2019

Error Correction Model Analysis of Tobacco Consumption in Kosovo

Error Correction Model Analysis of Tobacco Consumption in Kosovo

Jeta Statovci

Abstract: Information for cigarette consumption during the time period 2005-2017, was utilized to assess the price and income elasticity effects on smoking intensity in Kosovo. The analysis was conducted by applying the error-correction model to estimate both the long-term and short-term smokers’ sensitivity to changes in price and income. The study revealed that the short run price elasticity is -0.33, and -0.68 in the long run. Contrary to the price effect, income shows positive correlation to cigarette consumption in Kosovo. Based in the information revealed, it can be concluded that increasing taxes on cigarette results in lower consumption at the macro level.

Keywords:error correction model, tobacco products, elasticity, cigarette consumption

Januar 2019

The Elasticity of Tobacco Products in BiH- macro data analysis

The Elasticity of Tobacco Products in BiH- macro data analysis

Gligorić Dragan, Petković Saša, Pepić Anđela, Ateljević Jovo, Vukojević Borislav

Abstract: Tobacco consumption continues to be behavior engaged in by a large percentage of Bosnia&Herzegovina (BiH) citizens. According to the official statistics, nearly half of the state’s adults, that is about 1,200,600 people, consume tobacco product on a daily bases. The state excise policy is one of the main available tool for reducing smoking prevalence because the cigarette prices are under direct impact of this policy. The specific excise on cigarettes introduced in BiH in 2009 and have increased every year so it was the main driver of cigarettes price growth. In order to provide research-based evidence for more effective tobacco taxation policies in BIH, in this paper we estimate price elasticity of demand for cigarettes using the macro level data for the period 2008 to 2017, on a semi-annual basis. The results have shown that increase in prices of cigarettes have statistically significant impact on cigarettes consumption, at significance level of 1%. The estimated price elasticity coefficient is in the range from -0.71 to -0.83, depends on the selected control variables used in the model. It means that increase in real cigarettes prices for 10% led to the decrease in cigarettes consumption in the range from 7.1% to 8.3%.

Keywords: smoking prevalence, price elasticity of demand for cigarettes, specific excise on cigarettes, cigarettes prices.

January 2019

Tobacco demand elasticity and fiscal policy- the case of Albania

Tobacco demand elasticity and fiscal policy- the case of Albania data

Aida Gjika, Klodjan Rama, Edvin Zhllima, Drini Imami

Abstract: Albania is one of the countries with highest smoking prevalence in Europe. Despite the seriousness of the smoking phenomena, there has been limited research on the smoking behavior including also determinant factors. Accordingly, motivated by the need to investigate the demand of tobacco in Albania, from which policies can be better tailored, and the scarcity of empirical studies, this paper is based on econometrical analysis of aggregate macro data with focus on demand price elasticity. The empirical analysis conducted on annually aggregate data for the time span 2006-2017 suggests that prices significantly affect tobacco consumption. More precisely, the estimated results suggest that tobacco demand is price inelastic, with demand being relatively more elastic in the long-run than in the short run. Namely, the price elasticity of tobacco ranges from -0.27 to -0.77 in long-run and from -0.007 to -0.107 in the short run. We recommend that the government should further engage in gradual increase of taxation, since empirical evidence confirms that this is an efficient strategy to reduce smoking.

Keywords: demand, elasticity, tobacco, fiscal policy, Albania

January 2019

The Elasticity of Tobacco Products in Macedonia

The Elasticity of Tobacco Products in Macedonia

Biljana Jovanović

Abstract: The aim of this analysis is to explore the key factors that affect the aggregate demand for tobacco products in Macedonia. Given data limitations, we focus only on the demand for cigarettes, as data on other tobacco products are not available. Following the mainstream theoretical frameworks and empirical approaches, the analysis first estimates the price elasticity of demand, and then calculates the likely effect of an increase in excise duty rates on the prices of cigarettes, consumption of cigarettes and the excise revenues.

Keywords: tobacco products, cigarrettes, error correction model, price elasticiy, income elasticity

January 2019

The elasticity of tobacco products

The elasticity of tobacco products

Mirjana Čizmović, Tanja Laković, Milenko Popović, Ana Mugoša

Abstract: The primary objective of this study is to estimate the price elasticity of cigarette demand in Montenegro, as an important input for a tax policy targeted to reduce tobacco consumption. The estimation was conducted using annual time series aggregate data on cigarette consumption, cigarette prices, income, and public policies from 2001 to 2017. The long-run and short-run elasticities of cigarette demand with respect to price and income are empirically investigated using a conventional static demand model, presented in a linear functional form, by applying Error Correction and ARDL time series methodology. Empirical results suggest that in the long and short run the demand for cigarettes in Montenegro is affected by changes in prices and that this responsiveness is in range with the results obtained in similar studies done in low and middle-income countries. Results indicate that an increase in cigarettes prices and effective tobacco tax policy represents important factors that influence the reduction of the demand for cigarettes in Montenegro.

Keywords: tobacco consumption; price; elasticity; income; Montenegro

January 2019

Estimation of tobacco price elasticity in Serbia using aggregate time-series data

Estimation of tobacco price elasticity in Serbia using aggregate time-series data

Jovanović Olivera, Zubović Jovan, Vladisavljević Marko, Bodroža Duško, Ljumović Isidora, Domazet Ivana, Đukić Mihajlo

Abstract: In order to estimate elasticity of demand for tobacco products authors of this paper used aggregate level data. Research among low and middle income countries over the world empirically showed that demand for tobacco products is usually inelastic. Analysis conducted in the Republic of Serbia showed that price elasticity ranged between -0.76 and -0.62 while income elasticity ranged between 0.34 and 0.39. The main aim of this paper is to estimate long run and short run demand elasticity based on aggregate level data for period 2002-2016 using Error Correction model. This research is unique in the SEE countries, while research conducted in other low and middle income countries in Western Balkan region showed similar results.

Keywords: tobacco products, consumption, elasticity, price

Date: 01-2019