Price elasticity of demand for cigarettes in Bosnia and Herzegovina: microdata analysis

Tob Control. 2020 Nov;29(Suppl 5):s304-s309. doi: 10.1136/tobaccocontrol-2019-055258. Epub 2020 Aug 25.

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.

Keywords: low/middle income country; price; taxation.

Publication types

  • Research Support, Non-U.S. Gov't

MeSH terms

  • Bosnia and Herzegovina
  • Commerce
  • Elasticity
  • Humans
  • Smoking
  • Taxes*
  • Tobacco Products*