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

Date: 01-2019

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

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