Price and income elasticity of cigarette demand in Bosnia and Herzegovina by different socioeconomic groups
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University of Banja Luka, Banja Luka, Bosnia and Herzegovina
Publication date: 2022-07-05
Tob. Prev. Cessation 2022;8(Supplement):A74
Tobacco tax policy in Bosnia and Herzegovina (B&H) assumes a gradual annual increase in specific excise taxes on cigarettes. However, it is insufficient to significantly reduce consumption.

We examine the effects of the increase in cigarette prices and disposable income on cigarette demand in B&H by different income consumer groups.

Based on the Household Budget Surveys and micro-data from 2007, 2011 and 2015, we employed the logit model to estimate prevalence and Deaton’s model to estimate intensity elasticity of cigarette demand for a sample of 21424 households (9953 smoking households), by different income groups. We used the obtained elasticities and estimated the impact of tax increase on cigarette consumption and government revenue for three tax increase scenarios.

A 10% price increase would reduce the consumption of low-income households by 14%, as opposed to 9.9% for middle-income, and 7% percent for high-income households. Low-income households would significantly increase the demand for cigarettes compared to high-income households if income increased. Increase in the specific excise tax by 25% would reduce cigarette consumption and increase government revenue, while the low-income group would experience a reduction in tax burden.

Changes in prices have different impacts on tobacco prevalence and consumption of low-income compared to middle- and highincome socioeconomic groups. Low-income households are most responsive to changes in prices and income. Thus, the poor in B&H would benefit from an increase in tobacco excise taxes and price.