How do prices of manufactured cigarettes and roll-your-own tobacco affect demand for these products? Tobacco price elasticity in Western Balkan countries
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Institute of Economic Sciences, Belgrade, Serbia
Publication date: 2022-07-05
Tob. Prev. Cessation 2022;8(Supplement):A72
Numerous studies have indicated that tobacco taxation is one of the most important policies to reduce tobacco consumption. However, its effectiveness crucially depends on consumer responses to price increases, i.e. tobacco price elasticities.

We analyze tobacco price elasticity in six Western Balkan countries.

We estimate the own and cross-price elasticities of manufactured cigarettes (MC) and roll-your-own (RYO) tobacco by using the methodological framework of the two-part model, regional variation in prices, and the 2019 Survey on Tobacco Consumption in SEE countries (STC-SEE). STC-SEE provides uniquely comparable nationally representative data on smoking behavior for adults aged 18–85 years for each country.

The results suggest that higher prices of MC are associated with a lower prevalence of MC use, while higher prices of RYO are associated with lower intensity of RYO use. Furthermore, regions with higher MC prices have a higher likelihood of using RYO over MC, suggesting that RYO is used as a cheaper alternative to MC. Lastly, lower smoking prevalence and intensity are associated with more smoking restrictions and support for tobacco price increases.

To decrease smoking prevalence and intensity, governments should increase excises on all tobacco products. Since RYO are a cheaper alternative to MC, the increase of excises on RYO should be higher, so that after excise increase, the prices of the two products are approximately the same. To further reduce tobacco consumption, governments should combine increasing taxes on tobacco products with non-price measures, such as stricter smoking restrictions and smoke-free regulations.