Cigarette price elasticity in Croatia – analysis of household budget surveys

Abstract

This study estimates both conditional and unconditional cigarette price elasticity of quantity demanded in Croatia. Authors use Deaton's method, also known as the Almost Ideal Demand-System (AIDS), to obtain consistent estimates of the cigarette price elasticity on the sample of Croatian households. The data from household surveys (HBS) conducted in Croatia for three periods (2010, 2011 and 2014 year) is provided by the Croatian Bureau of Statistics (CBS). Estimated unconditional cigarette price elasticity is −1.38 and estimated conditional price elasticity is −0.63. Simulation of the tax effects shows that rising specific excise tax for 10 percent would result in 2 percent decrease in cigarette consumption while total tax revenues would increase by 1.97 percent. This study provides evidence that the demanded quantity for cigarettes is responsive to their prices. Consequently, this implies that tobacco tax policy can be used as an efficient tool for reducing cigarette consumption in Croatia.

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

“…The estimated price elasticity is −1.01 and implies that an increase in cigarette prices by 10% leads to a decrease in cigarette consumption by 10.1%. Compared with the price elasticity estimates for Serbia,23 Montenegro24 and Croatia,25 where unconditional (total) price elasticity amounted to −0.64 to –0.8 and −1.38, respectively, it can be concluded that our estimated price coefficient is in line with research in similar neighbouring countries. Roughly about 55% of the negative effect of price growth on the overall demand comes from a decrease in smoking prevalence and 45% from a decrease in the quantity of cigarettes consumed by those who smoke.…”