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Price elasticity of demand for cigarettes in Bosnia and Herzegovina: microdata analysis
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  1. Dragan Gligorić1,
  2. Anđela Pepić2,
  3. Saša Petković1,
  4. Jovo Ateljević1,
  5. Borislav Vukojević3
  1. 1 Faculty of Economics, University of Banja Luka, Banja Luka, Bosnia and Herzegovina
  2. 2 Entrepreneurship and Technology Transfer Centre, University of Banja Luka, Banja Luka, Bosnia and Herzegovina
  3. 3 Faculty of Political Sciences, University of Banja Luka, Banja Luka, Bosnia and Herzegovina
  1. Correspondence to Anđela Pepić, Entrepreneurship and Technology Transfer Centre, University of Banja Luka, Banja Luka 78000, Bosnia and Herzegovina; andjela.pepic{at}unibl.org

Abstract

Background Bosnia and Herzegovina (B&H) is among the top 10 countries in the world in terms of number of smokers. The cigarette prices in B&H are under a direct impact of state excise tax policy. The specific excise on cigarettes was introduced in B&H in 2009. Since then it has been increasing every year thus being the main driver of cigarette prices growth.

Methods In this paper we estimate price elasticity of demand for cigarettes following Deaton demand model and apply it on microdata obtained from the Household Budget Surveys in B&H conducted in 2011 and 2015. Deaton model uses within-cluster information to estimate total expenditure elasticities and then uses between-cluster information to estimate price elasticities. For B&H, the cluster is defined as a municipality × in the year t. Our sample contains 14 252 households, divided into 267 clusters.

Results Our results show that the price elasticity is statistically significant and amounts to −1.366. This means that if cigarette prices in B&H are increased by 10%, the demand for cigarettes would decrease by 13.66%.

Conclusions We found a negative price elasticity of demand for cigarettes of −1.366. These results of the econometric estimate of elasticity of demand are more elastic compared with the results of similar surveys carried out on the sample of low and middle-income countries. It demonstrates that the demand for cigarettes responds strongly to the price increase.

  • price
  • low/middle income country
  • taxation

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Footnotes

  • Contributors All authors contributed to data interpretation, revised the draft, and reviewed and approved the final version of the paper.

  • Funding This study was funded by the University of Illinois at Chicago’s Institute for Health Research and Policy through its partnership with Bloomberg Philanthropies.

  • Competing interests None declared.

  • Patient consent for publication Not required.

  • Provenance and peer review Not commissioned; externally peer reviewed.

  • Data availability statement Data may be obtained from a third party and are not publicly available. Data from the Household Budget Surveys (2004, 2007, 2011 and 2015) may be obtained from the Agency for Statistics of Bosnia and Herzegovina upon reasonable request.

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