Price and income elasticity of cigarette demand in Bosnia and Herzegovina by different socioeconomic groups

Abstract

BackgroundTobacco tax policy in Bosnia and Herzegovina (B&H) assumes a gradual annual increase in specific excise taxes on cigarettes. However, it is insufficient to reduce significantly consumption. This paper examines effects of the increase in cigarette prices and disposable income on cigarette demand in B&H by different income consumer groups.MethodsBased on the Household Budget Surveys and microdata from 2007, 2011 and 2015, we employed logit model to estimate prevalence and Deaton’s model to estimate intensity elasticity of cigarette demand for the sample of 21 424 households (9953 are smoking households) by different income groups. We used obtained elasticities and estimated the impact of tax increase on cigarette consumption and government revenue in three tax increase scenarios.ResultsTen per cent price increase would reduce the consumption of low-income households by 14%, as opposed to 9.9% for middle-income and 7% for high-income households. Low-income households would significantly increase the demand for cigarettes compared with 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.ConclusionsChanges in prices have different impacts on tobacco prevalence and consumption of low-income compared with middle-income and high-income 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.

Socioeconomic differences in the impact of prices and taxes on tobacco use in low- and middle-income countries–A systematic review

“…More detailed study characteristics of included studies are presented in the S3 Appendix . Out of the 32 studies, two were conducted using data from Sub-Saharan Africa (Kenya, Tanzania) [ 32 , 33 ], 11 from Latin America (Argentina, Brazil, Chile, Colombia, Ecuador, El Salvador, Mexico, Peru) [ 34 – 44 ], two from eastern Asia (China) [ 45 , 46 ], three from south-eastern Asia (Philippines, Thailand) [ 47 – 49 ], eight from Southern Asia (Bangladesh, India, Iran, Pakistan) [ 50 – 57 ], and six from eastern Europe (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, Serbia) [ 58 – 63 ]. We did not identify any studies from northern Africa, the Caribbean, central Asia, or Oceania.…”

“…Of 32 studies, only seven studies formally examined socioeconomic differences in price responsiveness and three found that lower-SES individuals or households were more responsive to cigarette prices than those of higher-SES. One study, rated at moderate risk of bias, found that households in Bosnia and Herzegovina with lower total expenditures were more responsive to cigarette prices, with differences large enough to be economically meaningful [ 63 ]. Another study, rated at serious risk of bias, found that low- and middle-SES households were more responsive to price than high-SES households in Montenegro [ 62 ].…”

“…Lastly, the most important limitation was the lack of formal assessment of socioeconomic differences in price responsiveness. Only seven of 32 studies formally assessed statistically whether own-price effects were modified by SES; three used interactions [ 38 , 39 , 46 ] while four used seemingly unrelated regressions to conduct Wald tests of equality of coefficients across equations [ 33 , 57 , 62 , 63 ].…”

Economic cost of cigarette smoking in Bosnia and Herzegovina

“…A recent study in BiH has shown that increasing tobacco tax would reduce tobacco consumption. 5 This would, in turn, reduce the related economic costs of tobacco use. This study does not estimate the economic cost of tobacco use in BiH just for the sake of measuring the current economic burden, but also to emphasise that stronger tobacco control measures should be implemented by the government to reduce these costs.…”

Achieving policy impact on tobacco economics research: experiences and lessons learnt

“…The papers included in this supplement span the regions of Asia, Latin America, and Southeastern Europe. The research focuses on consumer responses to cigarette price increases (Divino et al, 14 Nguyen et al, 15 Vladisavljevic et al 16 ) as well as their distributional impacts (Cruces et al, 17 Gligorić et al, 18 Divino et al, 19 Cizmovic et al, 20 Nguyen et al 15 ). Two papers analyse tax leakages along the tobacco supply chain: Vladisavljevic et al 16 use data from a primary survey in the Southeastern European region to analyse determinants of tobacco tax evasion and Drope et al examine the regional implications of the tobacco value chain in Paraguay.…”