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