Estimating the price elasticity for cigarette and chewed tobacco in Pakistan: evidence from microlevel data

Abstract

BackgroundWhile there is a large literature on the magnitude of price elasticity of cigarette demand, less is known about the same for chewed tobacco. Moreover, the studies on cigarette demand in Pakistan tend to ignore the heterogeneity in the smoking behaviour. This study estimates price elasticity for cigarette and chewed tobacco demand across different income groups, provinces and regions; and use these coefficients for simulating Pakistan’s tax policy and its impact on revenue and health outcomes.MethodDeaton model was applied on the 2015–2016 Household Integrated Income and Consumption Survey dataset to estimate price elasticities of different tobacco products.ResultsThe demand for cigarettes is unitary elastic (−1.06), suggesting that a 1% increase in cigarette price would reduce its consumption by 1.06%. On the other hand, the demand for chewed tobacco is relatively inelastic (−0.55). Provincially, the own-price elasticity of cigarettes is negative and significant for all but Kyber Pakhtunkhwa (KP) province; whereas that of the chewed tobacco is negative and significant only for KP and Balochistan. Besides, the price elasticity of demand for both tobacco products is negative and significant only for lower income group and the rural region. The tax simulations favour a two-tiered tax system over the existing three-tiered system as the former will bring significantly better tax revenue and health outcomes.ConclusionsWhile confirming the effectiveness of tax policies in curbing tobacco use, this study concludes that higher tobacco taxes could increase tax revenue and improve public health in Pakistan.

Economic burden of tobacco use in Pakistan

“…group-level disaggregation of the cost of tobacco-attributable disease burden, 15 none of the existing studies help. This paper communicates Pakistan's first ever estimate of the economic cost of smoking-attributable cancer, CVD and respiratory disease from a nationally representative survey of smokers and non-smokers in the country for the year 2019.…”

“…These findings also support the arguments made in some recent studies. For example, Nayab et al 15 and Saleem and Asif 24 reported household tobacco expenses are higher in the rural areas and among the lower income groups and argued that tobacco crowds out investment in human capitals in Pakistan and pushes households into a vicious cycle of poverty. Given that tobacco consumption is highly price elastic, suggesting price increase would reduce demand significantly, taxing tobacco to WHO standards and ensuring tax pass through to consumer prices of cigarettes would simultaneously improve economic and health outcomes.…”

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

“…The study that analyses the price elasticity by income groups in Argentina9 shows that price increase by 10% reduces the cigarette consumption by 2.8% and that wealthier individuals are more price sensitive, in absolute value, than the poorer ones with respect to consumption but they are less price sensitive with respect to prevalence. The studies from Thailand and Moldova also show that the cigarette consumption in low-income socioeconomic groups is more responsive to changes in the price than those in high-income socioeconomic groups,10 11 while the study from Pakistan reveals that only smokers belonging to the low-income group are price sensitive 12…”

“…The studies from Thailand and Moldova also show that the cigarette consumption in low-income socioeconomic groups is more responsive to changes in the price than those in high-income socioeconomic groups, 10 11 while the study from Pakistan reveals that only smokers belonging to the low-income group are price sensitive. 12 This paper examines price and income elasticity of the cigarette demand by three income groups in B&H. Reducing the demand for cigarettes can be reached by decreasing the prevalence of smoking or smoking intensity. Thus, we use a two-part model that is based on logistic regression to estimate prevalence elasticity and the Deaton demand method to estimate the elasticity intensity.…”

Pack Features and Availability of Illicit Tobacco Products via the Internet in Pakistan

“…4 The WHO estimates that 32.4% males and 5.7% females in Pakistan are current tobacco users. 5 Shisha, a form of smoked tobacco, has also become a growing trend among the Pakistani youth and as per a study reported from Karachi in 2008, regular shisha consumers included 43% males and 11% female university students. 6 Approximately 8% of the population in the country also consumes smokeless tobacco in various forms.…”