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